Tyson Foods shareholder meeting includes optimism, protestors

Tyson Foods Chairman John Tyson, grandson of the company founder, told shareholders Thursday (Feb. 8) the family venture has come a long way since its beginnings on Emma Avenue.

The small company transformed into a modern food company with a huge responsibility to take care of the workplace, animals, the environment and its 112,000 employees, he said.

“There are some people who think large scale food is wrong. But if they knew all our great people’s efforts, they would be surprised,” Tyson said during the meeting, which was held in new annex offices in downtown Springdale. “Food brings us together. … We take our responsibilities seriously and we accept them understanding their importance.”

Across the street from the Tyson shareholder meeting were about two dozen protesters holding signs telling Tyson to “clean it up” with respect to the environment. Jay Ford, representing the Commonwealth of Virginia’s Eastern Shore, spoke at the meeting thanking Tyson for the economic growth the company’s presence in that community in terms of jobs. But he said the company needs to do more and possibly reconsider the construction of 250 new chicken houses with 55,000 birds each to provide broilers to two local plants in that region looking to add capacity.

“The 250 new houses are going to an area that already has 300 houses and the two plants have already racked up considerable violations from regulators that impact the Chesapeake Bay area. Poultry houses and feed operations are already responsible for up to 17% of the nitrogen in Chesapeake Bay. It threatens habitats in this area,” Howard said during the meeting.

“Our highways are lined with signs of Tyson Foods, you are our neighbors and friends and we are glad to have you here. … We are asking that Tyson honor its promise to be a good neighbor and take the necessary stewardship steps to protect our water that this community depends upon,” Howard concluded.

The group asked Tyson Foods to adopt a water stewardship program and require suppliers to follow sustainable practices to ensure good water quality. Tyson’s board recommended to shareholders to vote against this proposal saying the company already has plan in place to reduce water consumption. The proposal was defeated with 84% voting against it.

The other shareholder proposal brought before the company at the meeting involved more transparency with the Tyson’s lobbying efforts was also defeated with 88% of the vote. Shareholders did approve an amendment to the company’s stock option incentive plan with 98.7% of the votes cast in favor. The slate of 11 directors was also elected with a combined 90.75% of the votes cast in favor. PricewaterhouseCoopers was also ratified as the independent auditing firm for the company with a 99.4% majority vote.

Board Chairman Tyson also thanked Chief Financial Officer Dennis Leatherby and General Counsel David Van Bebber for their more than three decades of service to the company. Tyson said Leatherby was instrumental in talking his father Don Tyson into buying Holly Farms some 30 years ago, Leatherby and Van Bebber are retiring in the next two months.

Earlier in the day, the company posted second quarter net income of $1.632 billion, with $790 million of that resulted from the lower tax rate. The company reported net income of $594 million in the same quarter of fiscal 2017. Revenue totaled $10.229 billion in the quarter, well ahead of the $9.182 billion in the 2017 fiscal quarter. The revenue also beat the consensus estimate of $9.87 billion.

DEBT REPAYMENT, INVESTMENTS
Leatherby told shareholders the company is in sound financial shape. He said the company continues to pay down its debt to a goal of 2x EBITDA ( a measure of earnings before interest, taxes, depreciation and amortization). He said the company has suspended share buybacks until that time which should be around the third quarter.

In the first quarter Tyson reduced its debt by about $500 million with its cash flow and proceeds from the Kettle brand with proceeds of $125 million. Sara Lee Frozen Bakery and Van’s are also being sold as the company focuses on protein-only businesses.

Leatherby said Tyson will spend about $1.4 billion to $1.5 billion this year, which includes $100 million incremental tax reform investment. Capital expenditures will include spending for production growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that will result in production and labor efficiencies, yield improvements and sales channel flexibility.

Tyson was asked about the spending through its capital venture fund. The company said that spending is small in terms of overall cap expenditures. The capital venture fund has made investments in Beyond Meat, Memphis Meat and more recently Tovala, a maker of steam ovens and meal-kits.

“These investments are about us learning insights that may or may not become mainstream. They are very small in terms of total spending,” corporate spokesman Gary Mickelson told Talk Business & Politics following the meeting.

AMBITIOUS PLAN
CEO Tom Hayes told shareholders during the meeting Tyson is looking ahead to how to sustainably feed a world that will grow by 9.5 billion people over the next three decades. He said Tyson is upgrading some of its plants for added capacity with the company’s strong cash flow that is being helped by a lower tax rate to the tune of $300 million this fiscal year.

“We are raising the expectation for what the world has for us. We will make some mistakes along the way … but we will learn from them,” he said. “We had quite a year in 2017 and are continuing to carry that momentum forward. Two years in a row we have been chosen by Fortune as one its Admired Companies in food production and that’s not an easy thing to do. This success is on the backs of our 112,000 team members on the front lines making it happen.”

Hayes added Tyson’s plan is ambitious and being sustainable is no longer an option.

“We are very focused that our growth is done in a sustainable way. We were funding some of this work but the tax reform proceeds will allow us to accelerate our sustainability efforts,” Hayes said.

Hayes also introduced Chief Financial Officer Steward Glendinning, who recently joined the company from Molson Coors, and Amy Tu who is replacing Van Bebber as general counsel. Tu joined Tyson Foods from Boeing.

SHAREHOLDER RETURNS
Tyson shareholders have seen profits stall this past couple of week amid high volatility in the broader markets. Shares of Tyson Foods (NYSE: TSN) opened with a bang on Thursday rallying to $77 because of the strong earnings report. But by 10 a.m. the share price hit an intraday low of $73.31 when the broader market began selling off amid inflation fears fueled by higher interest rates in the bond markets.

Tyson shares settled to close at $73.89, up 51 cents on the day, while the S&P 500 lost 3.75% and the benchmark Dow Jones Industrial Average lost 4.15% of its value. Over the past calendar year, Tyson shareholders have seen the stock price rise from $65.05 to $73.89 at the close on Thursday, representing a one year gain of 13.58%. Year-to-date shares are down 7.8% The S&P 500 is down 4.86% year-to-date and the benchmark Dow Jones Index is down 4.26% since Jan. 2.

Most analysts are bullish on Tyson Foods for 2018 given the company raised earnings guidance and beat their expectations in the first quarter, typically the weakest period for the meat company. Tyson Foods is no longer a cyclical play closely aligned with corn and soybean prices. The company grew its valued-add (higher margin product) sales by 9% in the first quarter. The company has also increased its stock dividend to $1.20 per share for this year, up from 50 cents per share just 18 months ago.