Tyson CEO talks earnings growth, higher revenues and continued hunt for efficiencies

Tyson Foods CEO Tom Hayes said the company’s “time of transformation” led to 450 job cuts at the corporate offices in Springdale, Chicago and Cincinnati. Insiders tell Talk Business & Politics the majority of the cuts came from Springdale, which is the largest of the three home bases.

Hayes spoke Friday (Sept. 29) with analysts but didn’t provide clarity on the cuts except to say Tyson Foods was grateful for the service of those employees who have helped the company over the years. He did say the “financial fitness” agenda is still underway at Tyson Foods. The acquisition of AdvancePierre Foods included a move by the company to review its entire operations. With that effort, overhead count, procurement and supply chain were three areas where savings will be generated over the next three years.

“We made sure we have really tight corporate centers that focus on enabling the business growth in the future. We are not done. We have opportunities in manufacturing that still have not been done,” Hayes said.

The reduction in corporate headcount likely involves veteran employees given the size of the one-time charge Tyson Foods is taking in the fourth quarter. Hayes said the company it will post a charge of up to $50 million for termination costs and up to $30 million in contract termination costs.

Two weeks ago Tyson Foods revamped its corporate sales team, cutting seven mid-level executives from its corporate payrolls. The longest tenured was Elmer Vasquez who logged 25 years with Tyson Foods, most recently as vice president of restaurant customers. Hayes also restructured its corporate divisions in August and two high profile executives Andy Callahan and Monica McGurk also had their positions cut. Earlier this year longtime Tyson executive Donnie King was out out of a job when Hayes shook up the management team, which was restructured again six months later.

The bulk of the call was spent by Hayes painting a rosy picture for Wall Street outlining the company’s growth strategy for next year and two years after that. Hayes reiterated the company’s earnings projections for 2018 which starts Sunday for the company’s fiscal 2018. The outlook he gave analysts included operating margins at the high end of the industry spectrum.

• Chicken margins of 11%, with nearly 3% more volume growth
•  Beef margins of 5%
•  Pork Margins of 9%
•  Prepared Foods margins between 11%-12% with 10% volume growth largely released to the AdvancePierre Foods acquisition.

The 2018 adjusted earnings target range of $5.70 to $5.85 would represent between 8%-13% growth over fiscal 2017 which ends Saturday. That would represent a five-year compounded annual growth rate of 20%, according to Chief Financial Officer Dennis Leatherby who also took part in the analyst call.

Tyson Foods will report fiscal 2017 year-end earning on Nov. 13, and analysts expect fourth quarter earnings per share of $1.19, up from 96 cents earnings a year ago with revenue of $9.86 billion, up 7.6% from a year ago.

The call was designed to give analysts a chance to question executives about the recent management changes, outlying industry economics and get more detail on where this earnings growth is going to originate as meat and poultry prices are expected to decline amid more supply.

Hayes said the chicken business is strong and the company will continue its “buy versus grow” strategy and continue to pursue the new processing complex in Kansas or maybe elsewhere. He said putting the project on hold because of opposition in Leavenworth County, Kan., has put the project about one month behind schedule. He said more towns have come forward and the company will select a site and move ahead with the project.

Next year, Hayes said Tyson Foods management expects to grow top line revenue to $41 billion, saying there will be $320 million in sales from AdvancePierre. He said the company will end 2017 with roughly $38 billion in revenue which will include about $1 billion of incremental sales from AdvancePierre.

He said Tyson Foods makes more money when prices go down for boneless, skinless chicken breasts, and the softness in the prices are baked into the company’s 11% operating margin. He said roughly 90% of the savings related to AdvancePierre deal were in chicken and prepared foods.

Leatherby said Tyson Foods will spend about $1.5 billion in capital expenditures in fiscal 2018 which includes the $320 chicken complex it plans to build and bring online by 2019. He said Tyson is generating cash which is being used to reduce net debt, fund the plant expansion, continue investing in brand marketing, look for additional acquisitions and share purchases.

“We are extraordinarily excited about not just ‘18 but beyond, based on everything that we’re doing here,” Hayes concluded.

Tyson Foods shares (NYSE: TSN) rose 7.79% in active trading on Friday following the call and closed the day at $70.45, up $5. For the past 52 weeks Tyson shares have traded between $55.72 and $75.55.