(Bloomberg) -- For all the challenges faced by the global meat industry over the past year, Tyson Foods Inc.’s top boss is candid about his company’s underperformance as he pushes a revival.
“Coming through the pandemic, we had gotten very inefficient,” Chief Executive Officer Donnie King said in an Tuesday interview in Danville, Virginia after a ribbon-cutting ceremony at the company’s new chicken nugget facility. “We got really comfortable. We got fat and lazy.”
Prices for beef, chicken and pork surged amid booming demand and supply disruptions during the pandemic, boosting profits at companies such as Tyson. Then came a downturn in demand, and America’s biggest meat company was hit hard. Adjusted net income for the fiscal year ended in September plunged 85% to the lowest in more than a decade, with profit margins largely trailing those of publicly traded rivals.
Tyson shares have lost 24% this year, trailing most peers in an index of global meat suppliers.
S&P Global Inc. slashed Tyson’s credit rating Tuesday to BBB — the second-lowest investment grade rating — and cited “inefficient production assets” among the factors that contributed to the company’s underperformance in recent years. Corrective measures and investments in more productive assets will help drive profit improvement, particularly in the chicken business, the agency said.
“We were not as good as we needed to be,” King said, adding that “we’re well on our way to being there again, and we will be there.”
King was named head of Tyson in June 2021, replacing Dean Banks as part of a revolving door of CEO changes over a five-year period. The commodities veteran first joined the company in 1982 and rose to lead the poultry business before leaving in 2017. He rejoined Tyson in September 2020.
Tyson’s return to form is now well underway, according to the CEO. The company has for the past 18 months focused on improving “the things that aren’t sexy” such as labor and yield management. It has also taken a series of more drastic measures including closing eight plants across several US states as part of an asset review process the company doesn’t expect to finish anytime soon.
“I don’t know that we ever will, and I don’t think you or anyone else should ever want us to be finished,” King said.
Facility closures are less a response to the ongoing market misfortunes than part of a continuous process of modernization that includes the gradual replacement of old plants with ones that are more advanced and better aligned with Tyson’s strategy, he added. “It will outlive me.”
To underscore his point, King said a chicken slaughtering plant that Tyson closed earlier this year in Glen Allen, Virginia — 150 miles (241.4 kilometers) from Tyson’s new Danville facility — couldn’t be updated and “would never compete with a 2023 asset that had all the automation, all the technology, size and scale and flow.”
The 325,000-square-foot Danville facility epitomizes what Tyson is pushing for. The company’s most advanced plant of the kind, it produces fully cooked, ready-to-eat products such as dinosaur-shaped chicken nuggets for retail customers. Part of a $1.3 billion investment in automation, the facility uses robots to execute some of the most difficult roles on the production floor. Tyson expects to open a similar plant in Bowling Green, Kentucky in January to produce bacon and other products under the Wright and Jimmy Dean brands.
Read More: Tyson Opens Chicken Nugget Plant in US in Push for Higher Profit
King said the company will continue expanding capacity to meet growing demand for branded products such as its Ballpark sausages and Hillshire hams, which typically command higher margins than commodity meat cuts. In the past year, Tyson’s prepared foods unit — which encompasses most of the company’s branded, ready-to-eat offerings — made up for the bulk of the company’s adjusted operating income, with profitability increasing when the producer faced losses across its larger chicken, beef and pork operations.
“This is where our sweet spot is,” he said. “That’s where we want to grow. That’s where we believe we have a point of difference.”
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