By Michael Hirtzer and Isis Almeida
Tyson Foods Inc. is replacing its top boss just as the pandemic boosts costs and clouds the outlook for America’s top meat producer.
Noel White, 62, will step down as chief executive officer after just two years on the job, but will remain at the company as executive vice chairman, Tyson said in a statement Monday. He will be replaced by 46-year-old Dean Banks, currently Tyson’s president, effective Oct. 3.
Tyson’s costs soared as it tried to contain outbreaks of coronavirus that infected thousands of meat-plant employees across America. The company spent an additional $340 million in the third quarter due to the virus and said costs are expected to increase for the remainder of 2020 and into the 2021 fiscal year.
“We have faced and expect to continue to face capacity utilization slowdowns in production facilities from team member absenteeism and choices we make to ensure team member health and safety,” the company said. “The lower levels of productivity and higher costs of production we have experienced will likely continue until Covid-19 is better understood and its impacts diminish.”
Tyson posted third quarter earnings of $1.40 a share, beating the average analyst estimate of 93 cents. Still, revenue of $10 billion missed the average forecast of $10.5 billion, and the company also said the increase in retail volumes couldn’t compensate for the losses from the food services sector as restaurants shut down.
The company’s chicken segment was hit particularly hard by the pandemic, with sales down due to lower volume and price, and Tyson took a $110 million hit from negative mark-to-market adjustments in derivatives.
The virus accelerated a shift by consumers to online food purchasing, and the company will adjust to move more goods through those channels, White said on a call with analysts.
“Some investors may be spooked by a few things today (the Chicken segment margin, the Prepared Foods segment margin, the CEO change, and the lack of guidance) but we recommend overlooking most of these,” JP Morgan Chase & Co. analysts including Ken Goldman and Anoori Naughton said in a note.
The company also said it couldn’t quantify the total impact of the virus on its operations. As a result, it didn’t provide guidance for margins in each of its sectors.
”As we look beyond this year, we’re prepared to navigate prolonged pandemic related uncertainty,” White said. “We are investing in operational flexibility to ensure that we can continue to meet customer demand, while living in a potentially long-term COVID-19 environment. We recognize that our level of future growth is dependent on the away from home eating occasions, which will be impacted by communities opening up and potentially reclosing.”
Tyson was one of the first companies forced to temporarily close a U.S. meat-processing plant as workers started catching the virus in April. The company spent millions in worker bonuses and to retrofit plants with more sanitizing stations and plexiglass dividers. Last week, the Springdale, Arkansas-based company said it was adding a chief medical officer position and almost 200 nurses to protect against the virus.
Shares of Tyson were up 1.1% to $62.10 as of 9:38 a.m. New York time, after gaining as much as 3%.
The company was optimistic about overseas sales, while stressing the U.S. market well supplied.
“We expect strong exports to continue as the impacts of COVID-19 start to level out in some areas, but we will continue to emphasize keeping domestic shelves and refrigerators stocked,” Banks said on the earnings call.
Major American meat producers including Tyson came under fire last month from Democratic senators over lingering concerns that workers at meat plants are not consistently being spaced apart on production lines. Tyson said in a response to the senators’ investigation that it installed barriers on production lines where “social distancing is not possible.”
The U.S. Department of Agriculture completed a probe of Tyson and other top producers over the surge in beef prices during the pandemic, but avoided any conclusion as to whether the companies manipulated prices.
The U.S. Justice Department has started a separate antitrust investigation, having requested information from the four biggest producers: Tyson, JBS SA, Cargill Inc. and National Beef Inc. They control more than two-thirds of all U.S. beef processing.