Tyson Foods said today that long-serving CEO Donnie Smith will step down at the end of the year, news that comes at the same time the meat producer issued a dour profit target for the upcoming fiscal year.
The market leader in chicken, beef, and pork unveiled a laundry list of news on Monday: it issued fourth-quarter results that missed Wall Street’s expectations, outlined fiscal earnings targets for 2017 that were also underwhelming, and said Smith—who had been CEO of Tyson Foods since late 2009—would be succeeded internally by president Tom Hayes.
“Donnie is leaving the company in great hands, having developed an impressive pipeline of management talent while positioning us for continued growth and change,” John Tyson, chairman of the board of directors, said in a statement.
That isn’t what shareholders are seeing. Tyson Foods’ (TSN) slipped a sharp 15% on the news on Monday. Analysts were digesting the update that fiscal 2017 earnings would range between $4.70 to $4.85 per share, below the $4.99 estimate according to analysts surveyed by Bloomberg. Though Smith said the first seven weeks of the year had been “phenomenal,” Wall Street clearly wanted more.
The fiscal fourth quarter results were also problematic. Sales slipped from $10.5 billion to $9.2 billion because of broad volume declines for chicken, beef, and pork. Average prices also dropped 15% for beef for the fourth quarter, due to higher domestic availability of beef supplies and lower livestock costs.
Notably, analysts clearly weren’t impressed with the rosy tone that Tyson Foods executives struck in their prepared remarks.
In the lead-off question during a presentation with Wall Street analysts, BMO Capital Markets analyst Ken Zaslow grilled the team.
“Donnie, I have to say that your timing of your retirement may not be perceived as optimal,” Zaslow said. “Tyson is in the middle of a class action suit. Earnings fell short of expectations on the perception that you’ve kind of reached peak earnings…why not hand the reins over once the dust settles a little bit?”
Smith responded by saying that the litigation—which alleges price collusion in the chicken market—had nothing to do with the executive transition, which he said was planned at an “excellent time.” Smith is also planning to make himself available to consult for Tyson Foods for a three-year period, so his influence may linger beyond the end of his tenure as CEO.
Executives at Tyson Foods were bullish about their positioning on beef and pork, although they did seem to concede that more work needed to be done to fix the chicken business. Tyson Foods intends to bulk up on innovation, boost some advertising, and also invest in the brand at retail. The company didn’t provide a lot of specifics about what those plans would entail.
Looking ahead, the tough quarter indicates Hayes will have some work to do to prop up Tyson Foods again at a time when many larger food producers are struggling to position their big brands in a world that is increasingly challenged by food startups. Hayes is an industry insider, previously serving as chief commercial officer at Tyson Foods where he oversaw North American sales, as well as an executive at Hillshire Brands and Sara Lee North America.
He will have to steer a larger, bulked up Tyson Foods, which back in 2014 acquired Hillshire Brands for $7.7 billion in a deal meant to bulk up the company’s branded offerings in the supermarket. Tyson Foods also generated headlines recently when it announced it became an investor in plant-based food startup Beyond Meat. That investment is part of a broader trend for Big Food—industry lingo for the major manufacturers like PepsiCo or Kellogg—to invest in smaller upstart brands that are winning market share and shelf space as consumers hunt for new food alternatives.