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SFD Report, 1/00
Report on Smithfield Foods, Inc. (NYSE: SFD)
As of January 9, 2000
Sean G. Thomas
Last Trade: $21 3/16
Shares Owned: 76
Market Price: $1610.25
Cost Basis: $2012.50
Total Loss: $402.25
Percent Loss: 19.99%
Strong Buy 2
Moderate Buy 4
Tuesday November 23: Smithfield Foods Reports Record Second Quarter
SFD reported record second quarter earnings for fiscal 2000. Net income
in the quarter ended October 31, 1999 increased to $22.2 million, or
$.48 per diluted share, from $18.5 million, or $.47 per diluted share,
in the record second quarter a year ago.
Net income in the first six months of fiscal 2000 increased 122% to
$29.1 million, or $.62 per diluted share, from net income of $13.2
million, or $.33 per diluted share, in the six month period a year ago.
The substantial increase in net income reported for both the quarter and
the six-month periods translates into more modest earnings per share
growth. This is the result of additional shares issued and outstanding
for acquisitions made in the past year.
Sales for the second quarter of fiscal 2000 were $1.2 billion, up from
$874 million in the same quarter of fiscal 1999. The increase in sales
reflected a 12% increase in unit selling prices combined with a 25%
increase in unit volumes in the Meat Processing Group. Processed meats
tonnage was up 61% and fresh pork tonnage increased 4%. Excluding the
impact of acquisitions, sales reflected a 13% increase in processed
meats volume and a 10% decrease in fresh meat volume as the Company
continues to pursue its strategy of increasing the proportion of its
business that is value added.
Monday December 6: Tyson fails to sell Pork Group sale to Smithfield
Tyson Foods Inc. said Monday it was unable to reach a definitive
agreement on the sale of its subsidiary, The Pork Group Inc., to
Smithfield Foods Inc.
Negotiations were mutually terminated because certain inherent
operational characteristics of Tyson's Pork Group did not fit into
Smithfield's expectations or long term plans, Tyson explained in a
Wednesday December 22: Smithfield Foods, Inc. Shareholders Approve
Acquisition of Murphy Family Farms
SFD held a Special Meeting of Shareholders to vote on the proposed
acquisition of Murphy Farms, Inc. and its affiliated companies
(collectively ``Murphy Family Farms''). Shareholders overwhelmingly
approved the issuance of approximately 10.7 million shares of Smithfield
Foods common stock in connection with the acquisition, which will double
the Company's hog production capacity. It is anticipated that the
acquisition will be concluded by the end of the Company's fiscal third
quarter. Murphy Family Farms will join Brown's of Carolina, Inc. and
Carroll's Foods, Inc., Smithfield's other domestic hog production
companies, in providing hogs for both the Company's slaughter plants and
for sale to third parties. Together, the three operations will produce
approximately 12 million high quality market hogs per year.
Monday January 3: Smithfield Sees Profits Hit by Floods
SFD announced that flooding in North Carolina and lower profit margins
would slash its fiscal third-quarter earnings.
“Results for the third quarter are expected to approximate the more
normal level of earnings achieved in fiscal 1998, a year without record
low hog prices,'' the company said in a statement.
Smithfield earned $23.7 million, or 60 cents per diluted share, in the
third quarter of fiscal 1998. In fiscal 1999, third-quarter earnings
were $1.31, an unusually strong performance inflated by record low hog
prices paid by Smithfield and other meat producers.
David Nelson, food industry analyst with Credit Suisse First Boston,
said he lowered his third-quarter earnings estimate to 52 cents from
$1.10. He said the revision was sharper than he had expected, but he had
known for some time that he would need to lower the forecast.
“They had such a blowout quarter last year. It was a question of how
much below that would it be?'' Nelson said. ''I didn't expect it to be
down this far. Clearly it is a disappointment, but I don't think this
has any effect on their fourth quarter or next year.''
Nelson said packing margins fell sharply in December, and floods related
to Hurricane Floyd hurt animal production operations. He said it could
take several weeks to determine how hurricanes affect animals' breeding
or feeding habits.
Wednesday January 5: Missouri sues to block Smithfield-Murphy deal
Missouri's attorney general said on Wednesday he sued to block pork
producer Smithfield Foods Inc. (NYSE:SFD - news) from buying the
Missouri operations of Murphy Family Farms, a North Carolina-based pork
company that Smithfield has agreed to acquire.
In a statement, Attorney General Jeremiah Nixon said the acquisition
would violate a Missouri law that prohibits corporate farming. He said
he asked the Vernon County Circuit Court to grant a temporary
restraining order and issue injunctions prohibiting Smithfield from
acquiring Murphy's assets and facilities in Missouri.
A spokesman for Smithfield, Va.-based Smithfield said he had not seen
the lawsuit and could not comment.
“When we learned of this proposed acquisition, we asked Smithfield to
explain how this purchase would not violate Missouri law,'' Nixon said
in the statement. “Their answers have not been satisfactory, and it is
clear that if they are allowed to proceed, Smithfield will be breaking
state law by engaging in farming in Missouri,'' Nixon said. ``Therefore,
we are asking the court to stop this acquisition.''
Missouri law provides that no corporation other than a family farm
corporation can farm or hold title to agricultural land. Nixon said
Murphy Family Farms qualifies as a family farm corporation under
Missouri law and has been allowed to operate swine production plants in
Barton and Vernon counties. However, Smithfield would be considered a
corporation under Missouri law, Nixon said.