New CEO named for Tyson Foods, company ends fiscal year with 45% income jump (Updated)

Tyson Foods ended its fiscal year with net income of $1.768 billion, 45% more than the previous fiscal year, thanks in part to lower grain costs, better margins in the chicken segment and continued success with its prepared foods business.

Fiscal year revenue totaled $36.861 billion, below the $41.373 billion in fiscal year 2015, and below the consensus estimate among analysts following the company of $37.12 billion. The fiscal year per share earnings of $4.53 was well ahead of the $2.95 in fiscal 2015 but below the consensus estimate of $4.59.

Fiscal fourth quarter income was $391 million, up 51.5% compared with the same quarter in 2015. Per share earnings in the quarter of $1.03, were ahead of the 63 cents in the same quarter of 2015, but below the  consensus estimate of $1.17 per share.

Fourth quarter revenue was $9.156 billion, below the $10.506 billion in the same quarter of 2015 and below the consensus estimate of $9.38 billion.

In the earnings report posted early Monday (Nov. 21), company officials said fiscal year results included a record operating margin of 7.7%, record cash flow of $2.7 billion and a record margin of 10% in the prepared foods segment.

“Fiscal 2016 was our fourth consecutive year of record results,” Tyson Foods CEO Donnie Smith noted in the earnings report. “We produced record earnings per share, operating income and operating margin. “We’re growing where we want to grow by selling more branded, higher margin products.”

Smith also said the company is “off to the best start we have ever experienced” for the next fiscal year, and he projected another record year of earnings with a per share range of $4.70-$4.85.

LEADERSHIP SHIFT
The company also announced Monday that the Tyson Foods’ Board of Directors named Tom Hayes as the next CEO effective Dec. 31. He will become a member of the board, and Smith will be retained as a consultant for three years. Smith was named CEO in November 2009, and has worked with Tyson Foods since 1980.

Hayes joined Tyson Foods in 2014 with the $8.5 billion acquisition of Hillshire Brands.

“Tom Hayes is a proven leader who has played an important role in creating today’s Tyson Foods and driving growth across our company,” John Tyson, chairman of the Board of Directors, said in the statement. “The plan we have announced today will result in a smooth leadership transition that positions Tyson Foods for continued growth and innovation. The Board’s decision to name Tom CEO at this time was based on both his track record and how his skills align with the company’s strategic direction and continuing evolution. The Board has the utmost confidence in Tom’s ability to build on the platform Donnie has created, to expand further into developing markets, new product categories and proprietary food experiences, and to continue investing in our core nine categories.”

Hayes has 29 years in the consumer food industry, and most recently was the president and chief commercial officer of Tyson Foods. He was the chief supply chain officer at Hillshire. His other jobs in the industry include senior vice president and chief supply chain officer for Sara Lee North America, president of Sara Lee Foodservice, and group vice president of US Foodservice.

Alan Ellstrand, who studies corporate governance and is a professor at the University of Arkansas, said in a June interview with Talk Business & Politics he was not surprised with Hayes’ move into the CEO succession plan.

“This move by Tyson Foods says a lot about how they view their relationship with Hillshire Brands. Tyson has been merging companies into its business for years and here they are putting top Hillshire talent nearly on par with existing Tyson talent,” Ellstrand said. “It’s also a good sign for other younger talent in the Hillshire ranks that there is opportunity to advance into Tyson’s top management circle.”

UPDATED INFO:
SEGMENT FINANCIALS
While operating margins were up in the company’s four key segments, sales for the year were down in all segments thanks in large part to broad deflation in the food industry that resulted in reduced prices. Operating income was down in the chicken and pork segments and up in the beef and prepared foods segment.

Chicken
Fiscal year 2016 sales: $10.927 billion
Fiscal year 2015 sales: $11.39 billion

Fiscal year 2016 operating income: $1.305 billion
Fiscal year 2015 operating income: $1.366 billion

Beef
Fiscal year 2016 sales: $14.513 billion
Fiscal year 2015 sales: $17.236 billion

Fiscal year 2016 operating income: $347 million
Fiscal year 2015 operating income: –$66 million

Pork
Fiscal year 2016 sales: $4.909 billion
Fiscal year 2015 sales: $5.262 billion

Fiscal year 2016 operating income: $528 million
Fiscal year 2015 operating income: $380 million

Prepared Foods
Fiscal year 2016 sales: $7.346 billion
Fiscal year 2015 sales: $7.822 billion

Fiscal year 2016 operating income: $734 million
Fiscal year 2015 operating income: $588 million

OPERATING OUTLOOK, CAPITAL EXPENDITURES
As they have in recent quarters, company officials said “heavy investments” will continue in innovation, with much of that focus on new products and brands within the prepared foods segment.

“For fiscal 2017, we expect our Prepared Foods segment operating margin to remain similar to fiscal 2016 results as we continue to invest heavily in innovation, new product launches and the growth of our brands,” the company noted.

The company said it would spend $1 billion on capital expenditures in the next fiscal year, not including initiative investments.

“In addition to allocating $1 billion for capital expenditures in fiscal 2017, we are investing in initiatives such as improved worker safety, food safety, animal well-being, warehouse and distribution optimization and attracting and retaining talent throughout our company. These investments will pay off in the coming years through, among other things, improved costs and reduced turnover,” Hayes said in the statement.

Although the company expects margin improvement in the segments, officials are predicting “sales to be flat” in the fiscal year.

Shares of Tyson Foods (NYSE: TSN) closed Friday (Nov. 18) at $67.36, but were down more than 10% in Monday’s pre-market activity thanks primarily to the company missing on earnings and revenue expectations. During the past 52 weeks the share price has ranged from a $77.05 high to a $44.98 low.