story by Kim Souza and Michael Tilley
ksouza@thecitywire.com
It was a busy year in Northwest Arkansas during 2014. Possibly more so than usual. Several changes at the top levels of Bentonville-based Wal-Mart Stores, along with changes in how the retailer does business captured much attention. Also generating headlines were bank mergers, bank fraud, and overall gains in the Northwest Arkansas economy.
1. Big changes at Wal-Mart
With news in January that Doug McMillon would be the retail giant’s CEO taking over at the end of Mike Duke’s five-year reign, other C-suite personnel changes ensued by mid summer.
The retailer also saw its U.S. comp sales return to positive territory this year after six dismal quarters. Despite the improvement, McMillon recruited his key leadership team from around the globe which resulted in several executive changes. Bill Simon, CEO of Walmart U.S., announced his resignation July 24. He was considered by some to be a contender to succeed Duke so his exit came as no surprise once McMillon got the post.
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McMillon’s choice of Greg Foran as the next chief of the Walmart U.S. flagship was met with some questions by analysts because Duncan Mac Naughton had been the top contender according to insiders.
Foran, a veteran operator who came through the ranks with the Australian retailer Woolworths, struck an accord with McMillon who oversaw Walmart International for the five years before succeeding Duke. Foran, a native New Zealander, ran the China business for Walmart International only briefly before being tagged by McMillon to turn round the retailer’s U.S. business.
Most recently, Mac Naughton resigned his position as chief merchandising and marketing officer for Walmart U.S., and Foran is taking the opportunity to restructure the rest of his senior leadership in the division.
Gisel Ruiz, chief operating officer for Walmart U.S., was reassigned to the retailer’s international division over personnel. Foran, who announced plans to expand and improve the retailer’s grocery business in the areas of fresh, meat and private label, recently named Judith McKenna to replace Ruiz. McKenna is also a veteran store operator who came up through the retailer’s ASDA business in United Kingdom.
“One of the great things about Wal-Mart is the depth and breadth of talent at all levels of our organization. Around the globe, we have some of the best leaders in retail because of our focus on developing talent and our commitment to creating opportunities for diverse experiences,” Foran said.
McKenna and Foran are each experienced merchants and operators by trade and having worked across international platforms will no doubt bring different ideas to the table.
“Wal-Mart knows it needs to make some changes in its U.S. division because the era of the supercenter growth has slowed. These changes require increased flexibility. I think this new blood and leaner management team facilitate Wal-Mart’s experimentation with more formats and new shopping channels,” said Alan Ellstrand, corporate management expert and professor at the University of Arkansas.
Foran also recently created new positions in the U.S grocery division, naming Scott Neal as meat czar to improve the retailer’s fresh meat offerings. Shawn Baldwin was tapped as a senior vice president for the retailer’s fresh business.
Retail analysts give McMillon high marks so far for the direction he seems to be taking with his sweeping senior leadership changes. They also note that the investments in e-commerce and multiple shopping formats are likely to yield market share gains and improved topline sales, the two areas leadership is most focused.
2. Tyson Foods acquires Hillshire Brands
Tyson Foods made a bold move in 2014 with its somewhat late entry into the bidding for Hillshire Foods. Springdale-based Tyson Foods would eventually win the bidding in August with a premium offer of more than $8.5 billion.
With the ink barely dry on its blockbuster $8.55 billion deal, Tyson Foods CEO Donnie Smith wasted no time in providing an upbeat “Brady Bunch” assessment on the integration of Hillshire Foods brands’ and operations.
"We're moving forward quickly with the integration and finding synergies, and we feel good about our ability to capture $225 million in synergies in the first year and $500 million by year three," Smith said during the Sept. 10 Barclay’s Consumer Conference in New York. "The more we get into it, the better we feel."
The deal creates the largest meat company in the world, with 2015 revenue expected to exceed $40 billion.
Smith said as the companies come together, it will be important to keep the best aspects of both organizations intact. He especially wants to keep the spark that led to the brand-building, marketing, innovation and product-development success at Hillshire. He said the Hillshire merger moves Tyson forward faster.
Tyson Foods’ Chief Financial Officer Dennis Leatherby reassured investors by announcing that the company is sticking to its 2014 full year earnings guidance of $2.78 per share – independent of the Hillshire costs and merger activities. Tyson's fiscal 2014 year ends Sept. 27.
Tyson expects the addition of Hillshire to be accretive to earnings in fiscal 2015 and substantially accretive thereafter. Leatherby said he expects at least 10% earnings per share growth in fiscal 2015.
Not all market watchers were convinced the deal would be as good for Tyson Foods as the executives predicted. Robert Moskow, an analyst with Credit Suisse, was initially critical of the deal, saying that Tyson paid too much for Hillshire and stockholders may not see a return for several years. However, later in the year, Moskow seemed less cynical of the deal.
On Oct. 1, Moskow noted to investors that three pieces of new information regarding fundamentals in the protein markets had led him to raise his earning estimates back in line with consensus and upgrade Tyson Foods to “neutral” from “under perform.”
“While we remain skeptical regarding management's ability to achieve its lofty synergy targets for the Hillshire Brands acquisition, we feel more comfortable that the strong demand and high margins in the core protein business (80% of EBIT) will smooth over the bumps in the road during the integration,” Moskow noted. (EBIT refers to earnings before interest and taxes and is a gross profit metric used by financial professionals.)
3. NWA population growth, economic news
A strong economy and several large corporate headquarters in Benton and Washington counties continue to draw more people to the region, with the Northwest Arkansas Council estimating that the metro population hit 500,000 in May.
“It’s been exciting to watch the growth and what it’s meant to the region,” said Jeff Schomburger, president of the Global Walmart Team for Procter & Gamble. “The quality and diversity of our educational options, from elementary school through high school, are a strong asset when we’re recruiting top talent to our region. As we’ve approached 500,000 residents, the growth, opportunities and quality of life have resulted in Northwest Arkansas being a coveted destination for families to work and live.”
An NWA Interstate 49 Corridor Report compiled by CBRE brokers David Erstine and Clinton Bennett and released in September pointed to dynamic economic growth in the region in 2014. Erstine said Northwest Arkansas is predicted to be the third fastest-growing economy among large metropolitan areas in the nation through 2020, behind only Austin and Raleigh-Durham, according to IHS Global Insight.
“Crossing over the 500,000 population mark was a milestone, an important metric for certain retailers and restaurants. Another 25,000 to 35,000 people and Northwest Arkansas will move into the top 100 metro markets in the nation,” he said.
All of the major cities in Northwest Arkansas are expected to benefit from ongoing infrastructure improvements expected to to wind down in 2019. The much-needed widening of the Interstate 49 corridor that links the region together and to the rest of the state and country entails 25 different projects slated through 2017 for a total price tag of $605 million.
The Northwest Arkansas jobless rate in October dipped below 4% for the first time since October 2008. The region’s rate also was the lowest metro rate in Arkansas.
The October rate of 3.9% was down from 4.4% in September and below the 5.4% in October 2013, according to figures from the U.S. Bureau of Labor Statistics. Metro employment during October of 224,698 was above the 223,532 in September, and also above the 222,492 in October 2013. The October numbers are subject to revision.
Higher sales tax revenue is another sign of an improved economy across Northwest Arkansas. The region’s four largest cities reported cumulative revenue of $4.663 million in the December report. That represents a gain of 9% over the $4.277 million reported a year ago.
Sales tax revenue collections between January and October were up 5.9% in Bentonville, up 0.97% in Fayetteville, up 5.47% in Rogers and up 8.11% in Springdale.
Enplanement traffic at the Northwest Arkansas Regional Airport (XNA) likely broke a new annual enplanement record on Dec. 5, and could end the year with around 640,000 enplanements. Airport officials have said an overall improvement in the national and regional economy along with fare price reductions are the primary reasons for enplanement gains.
Travelers flying out of XNA during November totaled 49,222, up 6.47% compared to the 46,229 during November 2013. For the first 11 months of 2014, enplanements at XNA total 591,480, up 10.37% compared to the same period in 2013. The year-to-date 2014 traffic is up 7.17% compared to the same period in 2007 – the year XNA reached its record enplanement of 598,886.
4. Bank mergers, scandal
The Dennis Smiley loan scandal rocked state’s banking sector in 2014. Smiley, one the highest ranking bankers at Arvest as market president in Benton County, resigned suddenly from his post in March.
Rumors began to swirl about reported improprieties in several outstanding loans Smiley had borrowed from 22 banks across the state. As many as 18 of those banks had lent about $4 million to Smiley over several years against his share of Arvest bank stock, a perk from management that was held in trust for his retirement. This retirement asset was non-pledgable, according to Arvest Bank, but it was used as collateral on multiple occasions by Smiley, with at least three Arvest officers signing off of the pledge.
Several of the outstanding loans were delinquent and Arvest was contacted for payment which resulted in Smiley’s resignation. Some 22 banks sued Smiley in civil court in Benton County several claiming fraud and forgery in connection with loans.
Arvest settled with 18 of the 20 banks for an undisclosed amount with the $551,764 redeemed by Arvest for Smiley’s retirement stock asset which was placed with Benton County Circuit Court.
Legal experts said a criminal federal investigation has been underway against Smiley’s borrowing and reportedly forged documents. No criminal charges have yet been filed. But several of the banks have continued to pursue Smiley in civil court.
His wife Cynthia Smiley recently filed Chapter 7 Bankruptcy seeking to charge-off $2.3 million in loans made to she and Dennis in connection to her business — Design for the Home.
Trial dates have been set in five pending civil cases against Dennis Smiley and his father, Henry Dennis Smiley Sr. who was a co-borrower according to court records. Smiley Sr. has said he had no knowledge of his alleged loan participation claiming he was a victim of fraud.
Aside from the Smiley scandal, assimilation following mergers were also big events in the state banking sector in 2014. Simmons First completed its $53.6 million purchase of Metropolitan National and shuttered 12 bank branches in the two-county area this year.
Simmons also picked up Delta Trust Bank for $66 million in late March adding Community First Bancshare of Union City, Tenn., for $243.4 million in May. Simmons expanded its footprint into Missouri with a $206.9 million purchase of Springfield-based Liberty Bank announced May 28.
While Simmons sees potential growth in Northwest Arkansas CEO George Makris said, “We really would like to fill in our footprint in Missouri and Kansas. We have a strategy now for de novo growth. We’ve got some really good bankers in those markets. “We need a little more scale in those markets to be able to do some of the things that we really want to do.”
Centennial Bank merged with Liberty Bank in late 2013 and top management changes ensued in the Northwest Arkansas market in early 2014.
5. Superior Closure
It’s not all been positive for the Northwest Arkansas economy. News hit in late July that Superior Industries would shutter its Benton County wheel manufacturing plant – located in Rogers – eliminating 500 jobs by year-end.
The shift in production comes as the wheel maker is opening another larger, more efficient plant recently built in Mexico. The closure is projected to save the auto supplier $15 million in operating costs.
The Van Nuys, Calif.,-based company said the older Rogers plant could not keep up the pace needed for the growing auto business despite an $18 million infrastructure investment there in 2013.
In 2013, the company said it squeezed 800,000 extras wheels from the two plants (Rogers and Fayetteville) but that was not enough. Soon after, the company broke ground on its fourth facility in Mexico hoping to recapture additional market share. At $125 million, the new plant in Mexico will produce up 2.5 million wheels a year, giving the company 20% more capacity.
For now the Fayetteville plant is safe, but there is no guarantee it will survive if production is expanded in Mexico. Local economic development officials said there were about 500 workers at the Superior Industries plant in Rogers when the announcement to close was made earlier this year. Since that time roughly 10% of them have taken jobs with other local companies, according to Steve Cox, director of economic development for the Rogers-Lowell Chamber of Commerce.