President and CEO of Tyson Foods Inc., Dick Bond, has
resigned to pursue other interests. Well, that's pretty vague, and so it's already set off speculation that his resignation may foreshadow future troubles at the company.
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Tyson will be losing its chief at a time when the meat-producing business faces troubles from weaker demand, oversupply and high commodity prices. The industry suffered a big casualty in December when Pilgrim's Pride Corp. filed for
bankruptcy.
Also unnerving investors and analysts is Tyson coming up against a very tricky time line regarding the terms of its recently renegotiated debt covenants, as well its reluctance to cut production even though chicken sales are down.
Tyson signed an
agreement last month
with creditors that puts up nearly the entire company as collateral for more flexibility on the covenants attached to a
$1 billion revolving loan, according to
CNN Money. The new deal with lenders extends its ratio to 4.5 (from 3.9) through the first two fiscal quarters,
falling to 4.25 in the third quarter and 3.5, respectively.
Further complicating matters is the company's earnings. Although overall results for 2008 were positive, Tyson only earned
$86 million compared to $268
million in 2007, in spite of sales rising to $26.86
billion from $25.73 billion. The loss in earnings was noticeable enough for Moody's Investors Service to downgrade the company to a negative outlook, citing "
profit concerns in the company's core chicken business."
Despite the rough market, Tyson Foods has said it would
use $1.5 billion of its cash to acquire
poultry farms and processing plants in Brazil, China, India and the U.S. On top of that, Tyson has been pursuing joint ventures in emerging markets to peak up chicken sales. Moody's cited this acquisition strategy in its downgrade: "Profitability in chicken is strained at a time when Tyson's acquisition strategy could preclude material debt reduction."
With so much on his plate, there's no doubt investors are hoping that Leland Tollett -- the former chairman and CEO of Tyson, who is replacing Bond until a permanent successor has been chosen -- will have a different strategy looking ahead.
- Maria Woehr
Comments
Maybe he's trying to explore the business world. But let's hope that Tollett will provide a different strategy to avoid further conflict with their business.