I write about different companies in my blog and newsletter, and it is always interesting to watch how things develop. This week is a good time to check in on Tyson.
In early October, Tyson announced that it was closing its Chicago office and consolidating operations in Springdale, Arkansas. This was a big shift; in recent years Tyson had expanded its Chicago presence, in an effort to attract top marketing and finance talent to its branded products group. The team in Chicago led innovation and managed brands like Jimmy Dean and Hillshire Farm.
At the time, I wrote that it was a bad move because people weren’t going to relocate, so Tyson would lose all the expertise it had built up. This meant that either Tyson was retreating from its efforts to build great brands and instead focusing on its commodity protein businesses such as chicken and beef, or it was just a poor decision. People sometimes make bad choices.
So how have things been going at Tyson since the announcement?
As expected, virtually the entire Chicago team resigned. I don’t think Tyson publicly released the final relocation figures, but people at Tyson tell me more than 90% of the Chicago marketers left the company.
The CFO was arrested.
Tyson last week announced dreadful results. CEO Donnie King stated, “…this quarter was definitely a tough one.” That was an accurate assessment. Operating income fell from $1,156 million to a loss of of $(49) million. For the most recent six months, operating income has declined from $2,611 million to $418 million.
Not surprisingly, the stock has dropped like a stone. Tyson’s stock price is down from about $65 back on October 6 when it announced the relocation to $49 today, a drop of 25%. The S&P 500 is up more than 10% over the same period. In early 2022 Tyson stock traded at almost $100 a share.
While the overall results are terrible, the situation is actually much worse than it seems.
In the latest financial results, Tyson’s commodity businesses delivered horrible results, with adjusted operating income in the 1H of FY 2023 falling from a profit of $2,155 million last year to a loss of $(77) million. The company attributed this to an unusual confluence of factors.
The branded products business – which used to be based in Chicago – did well. Through the 1H of FY 2023, adjusted operating income increased from $449 million to $499 million, a gain of +11%. The businesses did even better in the second quarter. Tyson celebrated the fact that market shares were looking good. Donnie King observed, “Winning with customers and consumers is a key priority, and it’s clear we’re having success with both.”
The problem is that there is a significant lag effect when managing brands. Building a brand and developing innovative new products isn’t quick. The results coming in today are from programs researched and developed last year, or the year before. The Tyson team clearly did some great work in 2022.
Which means that you have to be worried about Tyson’s Chicago move. What happens in late 2023 and 2024? All the programming for that period will now be developed by, well, I wonder who. Everyone responsible for the great Q1 and Q2 results left.
Perhaps Tyson will recruit a brilliant marketing team in Springdale that will be even more capable than the terrific team that Tyson had in Chicago, and lost. Some people like Springdale, and there are good people there. Just not a lot of them.
Last time I wrote about Tyson I said I was hanging onto my stock because I was sitting on a gain and the stock was well off its high. I’m now sitting on a loss. I wonder if I should sell and take the loss or look with hope far into the future when perhaps Tyson leadership will realize that you need a great team to build great brands. There are bumpy days ahead.