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Tyson Under Fire For Lower Sales, Price Fixing And Water Pollution


Tyson Foods Inc. (NYSE:TSMB) announced Monday that company President Tom Hayes will take over from current CEO Donnie Smith at the end of this year. The company reported lower-than-expected quarterly profits and sales, and offered a downbeat outlook for earnings in the year ahead.

Behind the scenes, the company continues to face questions around an industry benchmark for poultry prices and a resulting lawsuit over chicken pricing.

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Nothing To See Here

According to Smith and Hayes said the pricing controversy did not factor into the CEO change and added that the company’s prospects were excellent.

On a conference call to analysts, Hayes said, “The timing I think from everybody’s perspective couldn’t be better given the great shape that Donnie’s brought the company to.”

Analysts, none-the-less, questioned the company’s ability to sustain growth given the numbers.

The Numbers

Following record profits for 4 straight years, Tyson now projects earnings between $4.70 and $4.85 a share. Thomson Reuters analysts estimated earnings of $4.98 per share.

Tyson execs said the 3.2% sales decline was due to a quarterly sales decline, planned production slowdown and a bump in the cost of soybean meal, which is used in chicken feed.

Georgia Dock Index

Hayes played down the significance of the Georgia Dock index, a pricing benchmark calculated by the Georgia Department of Agriculture. According to Hayes, the price of feed grain was more important than the index.

Investors, however, say the way the Georgia Dock index is compiled has keep the price of chicken artificially high. Last month Maplevale Farms, a food service company in upstate New York filed a class action lawsuit claiming big chicken companies were engaging in price fixing.

Shares Tumble

Tyson shares fell 14.49% or $9.76 ending the day at $57.60. Earnings for the quarter rose to $391 million from $258 million in the same period a year ago. Excluding non-recurring items, adjusted earnings came to $0.96. Analysts had expected earnings of $1.16.

Revenue dropped to $9.16 billion from $10.51 billion and under the FactSet consensus of $9.40 billion. Looking ahead Tyson expects adjusted EPS growth of 7% to 10% in 2017. The FactSet consensus calls for 14% growth.

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War On Water Pollution

On top of everything else, Tyson and other large meat producers, including Perdue Farms, Smithfield Foods and JBS are under fire from 45 investors managing $1.2 trillion in assets to reduce what they see as severe water pollution in their feeding, slaughtering and processing operations.

The pressure comes a month after Hurricane Matthew flooded manure lagoons and left behind drowned hog, chicken and turkey carcasses, which increased water contamination risks in the U.S. Southeast