Tyson Foods CEO targets smaller deals for growth after $4.2B AdvancePierre buy
In an exclusive interview, Tom Hayes said his company isn't being valued by Wall Street using the same financial metrics applied to other big-branded food operators — leaving its shares undervalued.
Fresh off its biggest acquisition in three years, Tyson Foods’ top executive says the meat processor will focus its attention on smaller “bolt-on” deals, but he wouldn't rule out a larger purchase if it was a good fit for the company.
Tyson agreed to pay $4.2 billion in April for AdvancePierre, a maker of ready-to-eat hamburgers, stuffed chicken breasts, cheesesteaks and other sandwiches supplied to restaurants, hospitals, schools as well as convenience stores and vending machines. The purchase advanced Tyson’s goal of expanding into branded and prepared foods that generate larger and more predictable profits than its often volatile meatpacking operations.
“We’re going to stay focused on AdvancePierre and if another transformative acquisition makes a lot of sense — and a lot of it is about timing, we don’t want to overpay — certainly we might consider it,” CEO and President Tom Hayes told Food Dive in an exclusive interview. “Our focus right now is probably more on bolt-on deals, not necessarily transformative ones.”
"Our focus right now is probably more on bolt-on deals, not necessarily transformative ones.”
President and CEO, Tyson Foods
Those smaller deals, he said, would likely occur in chicken and prepared foods. Tyson could also look for ways to increase its production capacity for pre-packaged fresh beef and pork products supplied to retail grocery chains.
Beyond AdvancePierre, Tyson has moved aggressively to expand its product offerings in the retail and foodservice space. Three years ago, it spent nearly $8 billion to buy Hillshire Brands, bringing into the fold popular meat brands such as Jimmy Dean sausages and Ball Park hot dogs. And despite making a name for itself in pork, beef and chicken, the company entered the plant-based meat market last October after it took a 5% stake in Beyond Meat.
Hayes, who has only been at the helm of Tyson since Dec. 31, 2016, has made a clear commitment to long-term growth and transforming the company — especially on “doubling down” its presence in protein. Global demand is surging, and the meat giant wants to fortify its position to capitalize on this trend and grow along with it.
He has also overhauled Tyson’s corporate structure and company leadership roles — acknowledging that today’s dynamic food environment requires companies to be more agile and quicker to respond to changes in the marketplace — and spent $84 million to double capacity at a Tennessee poultry plant while opening a 75,000-square-foot, state-of-the-art Incubation Technology Center in Arkansas.
We need to “continue to be in growth mode because so many companies are not growing. Food companies are really starved for growth, so they have had to cut costs to the point that that is the only way to make money,” Hayes said. “We want to certainly be able to have the right cost structure but the future will be really focusing on growing our brands, our customer brands, and being that company that people look to and say, 'They are an ongoing, growing food company.'”
“[T]he future will be really focusing on growing our brands, our customer brands, and being that company that people look to and say, 'They are an ongoing, growing food company.'”
President and CEO, Tyson Foods
Unlike many of its peers whose stocks are languishing as consumers sour on processed food while flocking to fresh, organic and natural items, Tyson Foods’ stock has risen approximately 11% this year, leaving it near an all-time high. But Hayes still laments that his company’s shares aren’t being valued by Wall Street using the same higher financial metrics being applied to other big-branded food operators.
“I think the more that they realize that we are creating a differentiated model then I think we’ll start to get that multiple up," Hayes said. "The run-up that we’ve had in the stock is really just based on our earnings.”
In late September, Tyson announced it was increasing its fiscal 2017 earnings forecast due to a "much better than expected" profit from its beef segment. Guidance for fiscal 2018 was set for adjusted earnings of $5.70 a share to $5.85 a share, while estimates had been at $5.35 a share.
When asked if Tyson’s shares are undervalued if the same price-to-earnings multiple given to other companies was applied to his, Hayes replied: “Absolutely.” He added that “if we get any sort of a re-rate based on delivering against the fundamentals, we should have a nice pop.”
Despite Hayes' bullish outlook, Tyson is not immune to some of the changes taking place throughout the food industry — most notably the trend toward plant-based food.
The company's investment in plant-based protein company Beyond Meat came not long after Hayes was appointed president and shortly before he was named CEO. Hayes said the company’s venture fund is “looking for its next investment” following its decision to take a stake in Beyond Meat. The investment will likely focus on alternative proteins, sustainability issues such as reducing food waste, or ways to boost efficiencies using technology, according to Hayes.
Tyson remains pleased with its investment in Beyond Meat, though he declined to say whether it has considered increasing its 5% stake. “We like what they’re doing," he said. "We have a great relationship with the management steam, so we’ll continue to stay an investor."
Grocers are also overhauling their businesses to respond to changes in how shoppers buy their food as well as increased demand for fresher, more natural items. Tyson and other food manufacturers are responding to those changes.
Hayes noted that even though the company is “well-positioned” to meet the boom in e-commerce through initiatives such as its partnership with AmazonFresh and its Tyson Tastemakers meal kits, the online channel remains a challenge because of Tyson's focus on fresh foods — something he said is less difficult for shelf-stable or frozen food manufacturers.
One area where Tyson has benefited, Hayes said, is the shift by more traditional supermarkets to include restaurants to lure and retain customers, a move that is “creating a lot of opportunities for our products.”
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