SMITHFIELD, Va., Dec. 10 /PRNewswire-FirstCall/ -- Smithfield
Foods, Inc. (NYSE:SFD) today reported fiscal 2010 second quarter
results. Highlights -- Second quarter net loss was $26.4 million,
or $(.17) per diluted share -- EPS, adjusted for nonrecurring and
unusual items, was $(.26) -- Excluding hog production, the
operating results of all segments improved significantly -- Pork
segment increased $80.3 million, or 86% -- International segment
increased $4.6 million, or 42% -- Other segment improved $11.3
million, or 93% -- Pork segment and packaged meats achieved record
second quarter profits -- Pork segment restructuring activities are
on track to achieve annual profit improvement of approximately $55
million in fiscal 2010 and $125 million by fiscal 2011 -- Hog
Production losses continued to reflect oversupply conditions in the
U.S. -- Completed public stock offering, generating net proceeds of
$295 million -- Issued $225 million of bonds; repaid $546 million
of debt -- Liquidity remained at a high level, in excess of $1.2
billion Following are the company's sales and operating profit
(loss) by segment (in millions): Three Months Ended Six Months
Ended November 1, October 26, November 1, October 26, 2009 2008
2009 2008 (unaudited) (unaudited) Sales: Pork Fresh Pork $990.9
$1,259.3 $2,024.3 $2,600.5 Packaged Meats 1,250.8 1,330.8 2,469.2
2,568.8 Total Pork 2,241.7 2,590.1 4,493.5 5,169.3 International
336.0 402.5 634.3 807.8 Hog Production 554.9 748.8 1,107.1 1,474.6
Other 26.7 46.8 97.9 91.0 Total segment sales 3,159.3 3,788.2
6,332.8 7,542.7 Intersegment (466.9) (641.1) (925.1) (1,253.8)
Consolidated sales $2,692.4 $3,147.1 $5,407.7 $6,288.9 Operating
profit (loss): Pork Fresh Pork $42.6 $53.0 $35.8 $80.7 Packaged
Meats 131.1 40.4 238.9 74.4 Total Pork 173.7 93.4 274.7 155.1
International 15.6 11.0 22.9 16.9 Hog Production (167.3) (58.0)
(329.4) (96.8) Other (0.8) (12.1) (5.4) (18.8) Corporate (19.4)
(33.3) (35.8) (52.9) Consolidated operating profit (loss) $1.8 $1.0
$(73.0) $3.5 The company reported sales of $2.7 billion versus $3.1
billion in the same period last year. The decrease is attributable
to lower fresh pork selling prices, exchange rate changes in
international operations and significantly lower hog prices in the
U.S. hog production business. The company reported a loss from
continuing operations for the second quarter of fiscal 2010 of
$26.4 million, or $(.17) per diluted share, versus a loss from
continuing operations last year of $32.5 million, or $(.23) per
diluted share. In last year's second quarter, the company reported
income from discontinued operations, net of tax, of $34.2 million,
or $.24 per diluted share, related to the operations and sale of
its beef business. The current quarterly results were affected by a
number of significant items, including a higher than normal
effective tax rate (increased EPS by $.14 per diluted share),
restructuring and plant impairment charges in the Pork segment
(decreased EPS by $.03 per diluted share), and a loss on the
extinguishment of the European credit facility (decreased EPS by
$.02 per diluted share). After adjusting for these items, non-GAAP
second quarter fiscal 2010 EPS was $(.26). Commentary "Our packaged
meats business continued to deliver record profits in the second
quarter. This is the part of the business we have focused on and it
is repeatedly delivering superior results," said C. Larry Pope,
president and chief executive officer. "The restructuring plan is
in full swing and achieving benefits that are ahead of schedule
with estimated profit improvement of approximately $17 million in
the second quarter of fiscal 2010. We expect this plan will deliver
the targeted $55 million of profit improvement this year, after
applicable restructuring expenses, and the full $125 million of
annual benefits going forward," he said. "Unfortunately, these
results were offset by continued losses in hog production. Although
raising costs declined again this quarter, domestic hog prices were
sharply lower as oversupply conditions in the U.S. persisted," he
continued. Pork Fresh Pork Operating margins in fresh pork were
strong on a historical basis, although slightly lower than last
year. Number of head processed approximated last year's level, but
heavier weights resulted in a 2% volume increase. Fresh pork
results are benefitting from strong sales discipline and continued
improving operating efficiencies. While fresh pork exports for the
second quarter of fiscal 2010 declined compared to last year's
record levels, overall export volumes remain robust in historical
terms. Export shipments to China, which has been closed for all of
this fiscal year, are expected to resume in the wake of last week's
announcement by the Chinese government of their intent to re-open.
This should help the overall pork complex. Packaged Meats Packaged
meats profits more than tripled on volumes that were 4% lower than
the prior year. Results continued to benefit from pricing
discipline, rationalization of low margin business, low raw
material costs and the early benefits of the Pork Group
restructuring plan. International The company's Polish operations
delivered strong profits over last year as sales volume increased
over 20%. Campofrio Food Group's results improved in the second
quarter and contributed income of $4.2 million in the quarter in
spite of the recession in Western Europe. Hog Production Hog
production losses continued in the second quarter, despite a 16%
year over year reduction in raising costs. Domestic raising costs
decreased to $53 per hundredweight from $58 per hundredweight in
the first quarter of this year and $63 per hundredweight in last
year's second quarter. These costs exclude interest, a change from
our presentation in prior releases. Live hog market prices in the
U.S. decreased 32% to $36 per hundredweight compared to $53 per
hundredweight in the same quarter last year. As previously
reported, the company has reduced the size of its U.S. sow herd by
13%, or 130,000 sows. The company believes its reductions will
result in over 2.2 million fewer hogs annually by fiscal 2011. In
contrast to domestic hog production, international operations are
solidly profitable. Operating profits in the company's Polish,
Romanian and Mexican hog operations improved by $35 million on a
year over year basis. Other Losses in the company's Other segment
moderated, improving $11.3 million in the quarter. Results from the
company's investment in Butterball increased $22.0 million,
impacted largely by year over year improvements in feed costs and
industry supply contraction, but were partially offset by losses in
the company's turkey production operations. Financing In the second
quarter, the company completed a public offering of 22.3 million
shares of its common stock, with the goal of continuing to
strengthen its balance sheet. Net proceeds from the offering were
$295 million. In August, the company also added $225 million to the
senior secured notes offering it completed in July. Following
receipt of these additional bond proceeds, the company repaid the
$319 million balance under its European credit facility. The
company also repaid $206 million of maturing October 2009 bonds and
$21 million of other debt. Outlook "After a considerable and
extended period of sizable losses in the hog production industry,
the U.S. sow herd appears to be slowly contracting. As previously
announced, Smithfield has reduced its exposure to commodity hog and
grain markets through sow reductions and farm closings beginning in
February 2008. Given current and near-term industry dynamics, we
believe that further liquidation is needed to reach a balance in
supply and demand," said Mr. Pope. "We are encouraged by the EPA's
recent determination to delay its decision on the ethanol
industry's petition to raise the allowable ethanol blend in
gasoline by a full 50% - from 10% to 15%. The existing ethanol
policies have already driven as much as 30% of the annual corn crop
into ethanol production, directly and substantially driving up feed
costs for livestock and jeopardizing the economic viability of hog
producers across the country. We hope that the EPA, after further
study and with greater deference to the science and practical
consequences of increasing the ethanol blend, will abandon any
notion of granting 'E15' in favor of more economically sensible
alternatives. Everyone is in favor of developing alternative energy
sources, but we should not be reluctant to abandon the flawed
corn-based ethanol policy when it has the direct impact of causing
higher food costs to the American consumer," he continued. "On the
export front, we are pleased that China has announced its intent to
lift its ban on imports of pork from the U.S. and we hope to resume
business with them in the near term," he stated. "Although we are
disappointed with the results of the hog production segment, we
remain incredibly pleased with the continued profitability of the
packaged meats business. While the hog production losses are
temporary, we expect the packaged meats business to provide a
stable earnings stream far into the future. Hog prices are
improving and raising costs have trended downward, although still
historically high. Our restructuring plan is working and our cost
structure is steadily improving. Looking forward to the second half
of fiscal 2010, we expect the company to be profitable. The
combination of the many actions taken on the financial, operating
and sales fronts make me extremely optimistic as this business
returns to a more normal operating environment. For these reasons,
we have never been more positive about the earnings power of this
company," Mr. Pope concluded. With sales of $12 billion, Smithfield
Foods is the leading processor and marketer of fresh pork and
packaged meats in the United States, as well as the largest
producer of hogs. For more information, visit
http://www.smithfieldfoods.com/. This news release contains
"forward-looking" statements within the meaning of the federal
securities laws. The forward-looking statements includes statements
concerning the Company's outlook for the future, as well as other
statements of beliefs, future plans and strategies or anticipated
events, and similar expressions concerning matters that are not
historical facts. The Company's forward-looking information and
statements are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in, or
implied by, the statements. These risks and uncertainties include
the availability and prices of live hogs, raw materials, fuel and
supplies, food safety, livestock disease, live hog production
costs, product pricing, the competitive environment and related
market conditions, hedging risk, operating efficiencies, changes in
interest rate and foreign currency exchange rates, changes in our
credit ratings, access to capital, the investment performance of
the Company's pension plan assets and the availability of
legislative funding relief, the cost of compliance with
environmental and health standards, adverse results from on-going
litigation, actions of domestic and foreign governments, labor
relations issues, credit exposure to large customers, the ability
to make effective acquisitions and successfully integrate newly
acquired businesses into existing operations, the Company's ability
to effectively restructure portions of its operations and achieve
cost savings from such restructurings and other risks and
uncertainties described in the Company's Annual Report on Form 10-K
for the fiscal year ended May 3, 2009 and the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 2, 2009.
Readers are cautioned not to place undue reliance on
forward-looking statements because actual results may differ
materially from those expressed in, or implied by, the statements.
Any forward-looking statement that the Company makes speaks only as
of the date of such statement, and the Company undertakes no
obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise. Comparisons
of results for current and any prior periods are not intended to
express any future trends or indications of future performance,
unless expressed as such, and should only be viewed as historical
data. (Tables follow) SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share
data) Three Months Ended Six Months Ended November 1, October 26,
November 1, October 26, 2009 2008 2009 2008 (unaudited) (unaudited)
Sales $2,692.4 $3,147.1 $5,407.7 $6,288.9 Cost of sales 2,524.1
2,914.5 5,140.7 5,861.1 Gross profit 168.3 232.6 267.0 427.8
Selling, general and administrative expenses 180.0 209.7 363.8
400.3 Equity in (income) loss of affiliates (13.5) 21.9 (23.8) 24.0
Operating profit (loss) 1.8 1.0 (73.0) 3.5 Interest expense 71.2
56.2 131.7 101.5 Loss on debt extinguishment 3.6 - 11.0 - Loss from
continuing operations before income taxes (73.0) (55.2) (215.7)
(98.0) Income tax benefit (46.6) (22.7) (81.6) (36.4) Loss from
continuing operations (26.4) (32.5) (134.1) (61.6) Income from
discontinued operations, net of tax of $33.1 and $42.2 - 34.2 -
50.1 Net income (loss) $(26.4) $1.7 $(134.1) $(11.5) Income (loss)
per basic and diluted share: Continuing operations $(.17) $(.23)
$(.90) $(.44) Discontinued operations - .24 - .36 Net income (loss)
$(.17) $.01 $(.90) $(.08) SMITHFIELD FOODS, INC. AND SUBSIDIARIES
SCHEDULE OF EQUITY IN (INCOME) / LOSS OF AFFILIATES (In millions)
Three Months Ended Six Months Ended November 1, October 26,
November 1, October 26, Equity Investment Segment 2009 2008 2009
2008 Butterball Other $(8.0) $14.0 $(7.4) $20.5 Campofrio Food
Group (1) International (4.2) (0.1) (7.8) 3.6 Mexican joint
ventures Various (1.3) 8.6 (6.9) 1.2 All other equity method
investments Various - (0.6) (1.7) (1.3) Equity in (income) loss of
affiliates $(13.5) $21.9 $(23.8) $24.0 (1) Prior to the 3rd quarter
of fiscal 2009, we owned 50% of Groupe Smithfield S.L. (Groupe
Smithfield) and 24% of Campofrio Alimentacion, S.A. (Campofrio).
Those entities merged in the third quarter of fiscal 2009 to form
Campofrio Food Group (CFG), of which we own 37%. The amounts
presented for CFG represent the combined results of Groupe
Smithfield and Campofrio. CFG prepares its financial statements in
accordance with International Financial Reporting Standards. Our
share of CFG's results reflects US GAAP adjustments and thus, there
may be differences between the amounts we report for CFG and the
amounts reported by CFG. DATASOURCE: Smithfield Foods, Inc.
CONTACT: Keira Ullrich, Smithfield Foods, Inc., +1-212-758-2100,
Web Site: http://www.smithfieldfoods.com/
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