Tyson Foods remains in “very capable” hands, according to industry analyst Steve Kay, publisher of Cattle Buyers Weekly, who is “extremely confident” in Noel White’s ability to run the complex business.
“While some have said Tyson could revert back to its commodity mindset given Noel’s expertise in running the beef, pork and chicken business, he understands the future of Tyson Foods is continuing to expand value-added capabilities that stabilize margins,” Kay told Talk Business & Politics.
Kay said White’s years of service with Tyson Foods and IBP prior to 2001 have readied him for the challenges ahead with respect to weakness in the chicken and pork segments, and ongoing trade disruptions.
The Springdale-based global meat company announced Monday that White would succeed Tom Hayes, who was stepping down from the top job for personal reasons.
White has spent 35 years in the meat protein business, first learning to run the complicated beef and pork packing operations at IBP and Tyson’s fresh meats business. Then in 2013 White took over chief operations for Tyson’s chicken business, a job he held until February 2017. That’s when he was tasked with being chief operations officer under the first management shakeup by Hayes just 45 days into that job. In August 2017, Hayes again pared down the management team and White was moved to group president for beef, pork and international, the job he holds until taking over as CEO on Sept. 30.
White will hire someone to manage the beef, pork and international segments, but the company has not said who that will be.
Tyson has said company’s direction will not change under this new leadership, despite the abrupt departure of Hayes. Such sudden changes in leadership are uncharacteristic of Tyson Foods in its 83-year history. Hayes, who is finishing his two-year contract ,is leaving the company in good shape, according to CNBC Mad Money host Jim Cramer.
“I like Tom Hayes but Tyson has not done too well lately because of commodity pressures. Tyson has done some remarkable things to help stem the volatility with the commodity exposure, but they are still no Hormel, who recently hit a 52-week high,” Cramer said.
Tyson Foods shares have not had a great in 2018 with stock prices tumbling 22% since the beginning of the year. Wall Street analysts have been somewhat bearish on Tyson Foods in recent months. Akshay Jagdale, an equity analyst with Jefferies, said because Tyson reaffirmed its adjusted earnings forecast for fiscal 2018, ending Sept. 30, Hayes’ departure “is not a sign of potential operational issues.”
“Over his relatively short tenure, Tom made significant organizational changes,” Jagdale said. “All of these efforts set a good foundation but seem to have been overshadowed by a turn in the chicken and pork commodity cycles.”
Kay said the weakness in chicken and pork segments are troublesome for Tyson, but for now it’s making record profits in its beef segment which is enough to subsidize weakness in the other proteins. Kay said beef packer margins are averaging around $200 a head for the industry and Tyson’s margins are almost always better than the industry average. He said Tyson’s beef segment is generating lots of cash and also able to take advantage of much higher slaughter numbers this year ,running 2.7% higher than a year ago. That’s equal to about 600,000 more head slaughtered. Kay said about 40% of that gain relates to more cows than normal being slaughtered. But with the added slaughter demand, Kay said, Tyson has also been able to run its beef packing plants more efficiently enjoying a higher capacity utilization rate, which is a boost to margins.
Kay said consumer demand for beef remains as high and exports markets for beef have not been materially impacted. Pork is another matter. Kay said with 40% of the nation’s pork exports subject to tariffs the industry faces plenty of challenges.
Hayes recently noted at the Barclays Investor Conference that Mexico remaining open is the most important factor for Tyson’s pork segment as a large portion of hams produced are sold to Mexico. If ham exports stall, then product backs up in the U.S. taking wholesale prices lower and further eroding packer margins.
Weakness in the chicken segment is a direct response from weaker consumer demand amid excess production. Kay said consumers have more disposable income in their pockets, and heightened confidence in the economy and many are simply eating more burgers and steaks than chicken.
Hayes said chicken sales were weak all summer in part because restaurants featured more beef. Kay said with beef prices being fairly competitive with other proteins given the promotions from retailers and restaurant operators, consumers ate more beef. He said the margins for retailers and restaurant owners are better with beef than chicken. He said the weakness in chicken and pork won’t likely abate any time soon, but White knows what it takes to run these complex operations successfully.
With respect to Tyson’s future, Kay wished the best for Hayes and his family, and credited him with laying some solid groundwork for White.
White will oversee the integration of the $2.15 billion Keystone Foods acquisition, leaving Tyson with higher debt ratios, according to Fitch ratings. While Fitch analysts said the acquisition improves scale and is consistent with Tyson’s strategy to become a higher-margin food company, Tyson should make debt reduction a priority until debt-to-gross earnings ratios are at more comfortable levels within the company’s targets.
Analysts wonder if Tyson will be as focused on acquisitions under White’s leadership. Hayes pulled the trigger on Keystone, American Protein, Smart Chicken, Original Philly, and Advancepierre, most of which are still being integrated into Tyson’s business. With higher debt levels, White may focus on integrating the acquisitions and managing challenges in the company’s chicken and pork segments, according to industry insiders.
Investors remain cautious on Tyson Foods – sentiment that began prior to the CEO change announcement. Argus downgraded Tyson to a “hold” on Sept. 5, citing trade concerns and soft U.S. demand for chicken. Also last month, Buckingham Research reiterated a “hold” rating and a lower price target of $71. In July, Barclays decreased their price target on Tyson Foods from $80 to $72, and Stephens Inc. also lowered its target price to $73, while reiterating a “buy” rating.
On Wednesday, (Sept, 19) Tyson Foods shares (NYSE: TSN) closed at $61.56, down 81 cents or 1.3%. For the past 52-weeks the share price has ranged between $84.65 and $56.79.