The Fixer: Tyson Foods CEO Donnie Smith

Editor’s note: Donnie Smith is the cover story of our latest magazine edition of Talk Business Arkansas, which you can read at this link.  You can also listen to a mp3 audio interview here.

Bell Buckle, Tennessee doesn’t sound like the launching pad for the career path of a CEO for the world’s largest protein company and one of Arkansas’ largest employers.

However, it provided the foundation for a storied career for Tyson Foods CEO Donnie Smith, 54, who started with the Springdale-based meat giant in 1980 when he was fresh out of college.

“I was a broiler service man calling on growers and trying to help them do a good job growing chickens,” Smith recalls.

Bell Buckle is smack-dab in the middle of Tennessee. It boasts a population today of 500 residents and is known for its annual RC Cola and Moon Pie festival. The land surrounding the town – as its name might suggest – is fertile farm and pasture land with a lot of activity in the cattle and poultry business.

According to legend, Bell Buckle derived its name from the settlers who discovered Indian carvings of a cow bell and buckle on a tree in the region.

The lessons learned by Smith in tiny Bell Buckle proved instrumental for guiding his career to the top post of Tyson Foods, a dominant worldwide brand and business founded three generations ago by the legendary John Tyson.

A pre-vet major at the University of Tennessee, Smith figured out by his sophomore year that he ought to consider a different pursuit. Guided by his college advisor, a poultry science extension service representative, Smith pivoted to a degree in animal science.

His advisor noted that Tyson Foods had a complex in Shelbyville, Tennessee about an hour-and-a-half from where Smith grew up.

“I started working them really hard my last year of school,” Smith said.

He graduated from UT on December 12, 1980; married his wife, Terry, on December 20; and started working for Tyson Foods on December 28. It’s been that kind of pace for Smith’s entire career.

RISING THROUGH THE RANKS
After a few years as a broiler service rep, Smith was promoted to feed mill manager in Shelbyville before then-CEO Leland Tollett called Smith to Tyson’s headquarters in Springdale in 1987 to work with the company’s grain purchasing group. Smith mastered the challenge and by the mid-1990’s he was in charge of additional purchasing groups – not just grain feed, but bags, boxes, food ingredients, maintenance items, and more.

Another promotion was in the works after the purchasing gig as upper management asked Smith to move into logistics to oversee transportation and warehousing in advance of a major acquisition that Tyson Foods would make in 2001.

That was the year, that the poultry giant acquired Iowa-based IBP – the largest U.S. beef producer and second largest pork producer. It was a $3.2 billion deal that transformed Tyson Foods from a chicken producer into a full-fledged meat and protein company.

Smith’s role was expanded beyond logistics to include production planning by mid-decade. Pretty soon, the country boy from Tennessee was headed into the world of information technology.

With the integration of IBP, Tyson Foods was going through immense growing pains and Smith was put in charge of a struggling “enterprise resource planning” (ERP) initiative aimed at streamlining the new company’s assets and operations.

“Our scope got really big,” said Smith, whose background in the company’s supply chain and business processes was useful to oversee the project and get it headed in the right direction.

Dick Bond, CEO during the mid-point of the decade, then asked Smith to become the Chief Information Officer.

“So imagine you go to the UofA and you get your masters degree in information systems and you find out that your CIO has a animal science degree from Tennessee,” Smith laughs.

But it went really well. Smith’s background in the business coupled with a team of top technologists was a great fit for positioning Tyson Foods for the future.

By now, Smith’s well-roundedness in the company allowed him to take on greater responsibilities, including a “shared services” role where he and his team could cut across channels and serve the whole firm in a variety of ways.

In 2008, Smith was asked to take another role in Tyson’s retail group working with the poultry and prepared foods divisions – two of Tyson’s four major business silos.

By 2009 – after his early mentor Leland Tollett returned for an interim CEO stint – Smith’s broad and balanced skills made him a natural selection for the role he has today. Smith, however, says he really didn’t see it coming.

“It didn’t seem like it at the time. But as I look back, all of those experiences in one way or another I can draw from today to do this job. But if somebody had a master plan, I think God was orchestrating it more than anybody else,” Smith chuckles.

“It sort of painted a brush stroke or two on the tapestry of how you get to be who you are. I’ve had a lot of great people along the way who have just – for whatever reason – taken an interest in me and tried to shave off a few of the rough edges and sand off a rough spot or two,” he adds.

TURNING IT AROUND
It won’t take ten seconds into a conversation with Smith to recognize his enthusiasm and animation, not to mention his endearing Tennessee twang. Throughout our talk, Smith is self-deprecating and humble, quick to credit his management team and employees, but full of zest for the subjects at hand.

High-energy is another adjective that leaps to mind. He is intense in his personal engagement with others. As we walk briskly through the corporate headquarters on a tour, Smith interacts often with employees in the hallways, kitchen areas, and research and development division.

The Springdale headquarters has a large volume of masterpiece art adorning its hallways. A whimsical statue of a chicken-cow – an artist’s rendition of a morphed animal with a chicken’s comb, beak and tail attached to a cow’s body – would make the perfect prop for a hilarious cover photo, especially if Smith would agree to sit on top of it and wave like Bronco Billy.

“I’ll do it,” Smith says after I suggest the shot. We have a good laugh as his PR handlers wisely encourage us to “move along” to the next destination.

When Smith took over as CEO in late-2009, Tyson Foods was struggling – like most businesses – from the recession that reshaped the American and world business landscape.

Tyson finished that year with a $547 million net loss. Its debt was massive and it had only invested $368 million in capital expenditures, a significant drop-off from the previous year.

Smith says a focus on two primary areas helped the company move forward since the bumpy years when he inherited the CEO mantle.

Number one was culture.

“I think creating a culture where people are willing to take some risks – not crazy risks, but reasonable, controlled risks – not afraid to fail, knowing that we’ve got to try different things, we’ve got to try to innovate … we knew we had to create a culture where people know we care about them, and they were willing to take a chance and try something new,” Smith said.

As an example, he points to a time in 2009 when light truck weights were eating into the profitability of the company’s poultry business. He says Tyson was averaging about 24,000 lbs. a truck. Smith and his management team made the decision to enlist ideas from the customer service representatives who were on the ground dealing with the light truck weight issue.

They were asked how to improve transportation efficiency, says Smith, and in return ideas ranging from shifting order patterns to re-working production plant operations emerged.

“Now we average close to 34,000 lbs. a load in that business,” Smith notes. “The bosses didn’t do that. It was the bosses turning the people loose.”

He underscores that listening to clients and customers and responding with solutions has been a part of the culture, too.

“I think God gave us two ears and one mouth for a reason, so we try to shut up and listen,” he jokes. “It’s hard to tell through this interview because I’m talking like a machine gun.”

The other half of the equation leading to Tyson’s turnaround financial performance centers on a commitment made in 2010 when Smith was in his first full year as CEO. He said there was broad consensus that a realignment of the company’s cost and capital structures had to be brought in line.

“I remember not long after they put me in this job, I brought the senior team together and said okay we’re going to have our first strategy talk. And here’s our strategy: we’re not going to talk about strategy for at least a year. We don’t need a strategy. We need to fix this business. Forget about grandiose ideas about who we could be in five years because if we don’t fix this thing, there ain’t going to be five years. Just go get good at what we do,” Smith told the troops.

He emphasized that the turnaround investments and changes he’s helped guide have little to do with controlling grain and feed costs related to the beef, poultry and pork industries. As important as they are, Smith says Tyson Foods has spent the last four years fixing its internal operations in order to become more efficient and profitable.

“I’m talking about things that we had complete control over that we just weren’t focusing on at the time,” said Smith, who highlighted changes in line efficiencies, labor resources, plant spending, and yields as examples.

In four years, Tyson Foods has shaved more than a billion dollars worth of debt from its balance sheet and lowered its debt-to-capitalization ratio from 44% in 2009 to 27.9% in 2013.

Sales have climbed nearly 29% higher during that time and net income has reversed from that $547 million loss in 2009 to a $778 million profit in 2013.

Its stock price has climbed from a low of $4.40 per share at one point in 2009 to a high last year of $31.83. It has approached $40 per share so far in 2014.

“It’s been about getting back to the fundamental basics of blocking and tackling of running a good business,” said Smith, who is also quick to point out that he is undeserving of any individual accolades for the improvements.

“I don’t think any one person can ever get credit for what a team or group of people accomplishes,” he said.

CONSUMER SHIFTS
In the future, Tyson Foods will rise or fall by how well it adapts to changing consumer habits and its ability – along with its food production peers – to meet the rising demands of a growing world population.

Tyson Foods eyeballs three big indicators for determining its product mix and future sales: consumer confidence, gas prices and their effect on disposable income, and price-value decisions.

“Today, we have definitely seen a shift from beef to chicken,” Smith confesses. “Pork demand is about the same as it was, but beef is just pricing itself beyond the reach of a lot of consumers. Chicken looks like a much better value.”

The beef markets have been roiled in recent years by drought and feed costs, leading to a much smaller supply of cattle that Smith says is years away from recovery.

For the Tyson Foods business model, having multiple protein choices and the ability to reach consumers through different channels and in a variety of price ranges is key. Smith calls it an “omni-channel mindset.”

A huge portion of Tyson Foods sales is in the restaurant chain business. The company supplies McDonald’s, for instance, but it also services many other chains and distributors. With recent acquisitions of tortilla and chip making factories, there is a good chance that your next cheese dip, salsa or enchiladas at a Mexican restaurant will have a connection to Tyson Foods somehow, someway.

In just the last year, the company has also made prepared foods acquisitions that include pretzels, pizzas and flatbreads.

Smith says since the Great Recession there has been a noticeable paradigm shift in consumer purchasing habits away from restaurants and into retail. Obviously, disposable income has been an important factor, but the variety of food distribution outlets for an average grocery shopper has multiplied and grown more complex. In addition to traditional grocery store shopping, there are now online food sites, dollar stores, drug stores, and other outlets.

Beyond Wal-Mart, which accounts for about 13% of Tyson’s sales, no other vendor makes up more than 10% of its business.

Healthy choices are also shifting consumer demand. Smith said that consumers define “healthy” differently than you might think.

“If you go back eight or ten years, people wanted to talk about eating healthy, but we could look at the takeaway in food service and retail and tell it really hadn’t changed their purchasing habits very much,” he notes.

From portion size to ingredients, Smith says today’s consumers are shifting their buying habits. That’s creating opportunity for Tyson, he says, as the company develops new products in its state-of-the-art research and development facility also located at the Springdale headquarters.

On the day of our visit, 30 new products were being line-tested and dozens more were being prepped for taste-testing in the kitchen labs on campus. It’s a perk of the job to get a call or email in the corporate office to come sample a new product and offer anonymous feedback.

The key to Tyson’s R&D is segmentation. Increasingly, food choices are becoming more segmented to consumer groups based on lifestyles, gender, ethnicity, age, and regionalism.

“We get to know them, we do focus groups. We do a lot of research on these folks and try to understand what they’re thinking. And we try to keep about a 18-month pipeline of innovation coming towards the market,” Smith says.

FEEDING THE WORLD
In the next 40 years, Smith warns that the world’s population will grow to the point that companies like Tyson will have to produce twice the amount of food made today.

And it will have to be done with the “same land, same air, same water” on the planet.

Demand is being driven primarily by developing countries that are seeing rising household incomes, and in return, want to add protein to their food choices. While Tyson’s full portfolio of chicken, beef and pork will benefit, chicken is likely the biggest winner because it has a low-cost value and there are no religious barriers to its acceptance.

Smith suggests that education will become more crucial to the food conversation not just in overseas markets, but here at home where Tyson Foods and its competitors face a barrage of critics over animal management practices. Less engaged consumers could also use a tutorial, Smith contends.

“It’s a huge issue. There is a group of people who care deeply about their food, but they’re not very literate on the supply chain that provides them their food. As a country, we’re a couple of generations off the farm,” says Smith.

“One of the things that agriculture needs to do is increase the amount of communication we have about how important food is to the world. Part of the answer has to be in education and communication,” he notes. “But I think the other part of the answer is you just need to roll your sleeves up and get involved.”

Last year in conjunction with the Clinton Global Initiative, Tyson Foods announced it would underwrite fellowships – called Tyson Foods Fellows – to assist developing countries in the education effort to combat poverty and food deficiencies. Currently in Tanzania, Tyson Foods Fellows are working hands-on with local farmers to develop a poultry supply chain that will hopefully sustain them for the rest of their lives.

Smith and his wife have been willing to put their money where their mouth is. Last month they personally pledged a $3.2 million gift to their alma mater, the University of Tennessee, to establish an endowed chair in International Sustainable Agriculture.

The new faculty position will help bring science-based agricultural solutions to areas of the world with struggling agricultural practices and economies.

Population growth and emerging markets will also present more opportunity for Tyson Foods to expand worldwide.

“One of the things we’re going to have to do is broaden our footprint,” says Smith. “We’ve got operations in four geographies outside of the U.S. today and over time we might expect that to expand.”

While education and philanthropy are part of the solution to the food challenge, Smith is also quick to point out that technology can’t be underrated.

“I go in a modern chicken house today and just look at how comfortable the birds are in a temperature-controlled, computer-operated, environmentally-friendly chicken house that I couldn’t even dream in 1982 when I was growing chickens for the company – these chickens are more comfortable than our little house was in Bell Buckle, Tennessee. We’ve made a lot of progress with technology.”