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SFD Report, 3/00
Report on Smithfield Foods, Inc. (NYSE: SFD)
(Full annual report to follow next month -- sorry, folks, it slipped my
mind for this month and I didn't get any of their competitor's
financials to compare/contrast...)
As of March 26, 2000
Sean G. Thomas
Last Trade: $17 13/16
Shares Owned: 76
Market Price: $1,353.75
Cost Basis: $2,012.50
Total Loss: $658.75
Percent Loss: 32.73%
Strong Buy 1
Moderate Buy 3
January 21: Smithfield Foods, Inc. Reorganizes Board of Directors And
Increases Stock Repurchase Authorization
Smithfield announced that it has elected two new outside directors to
its Board, reduced the Board size from 13 to 9 and established a
separate Management Board and Environmental Compliance Committee. These
changes implement the plan, announced at the 1999 Annual Meeting of
Shareholders, to establish a new Board structure reflecting current
trends in corporate governance. A majority of the new Board consists of
outside, and independent, Directors. In addition, the Board approved an
increase from 3 million to 4 million shares, in the number of shares of
common stock that the Company may purchase from time to time in the open
market or in private transactions. The Company has purchased
approximately 2.8 million shares in open market and private transactions
since September 1999 pursuant to a share repurchase program previously
authorized by the Board.
January 28: Smithfield Foods, Inc. Completes Acquisition of Murphy
Smithfield today announced that it has completed the acquisition of
Murphy Farms, Inc. and its affiliated companies (collectively “Murphy
Family Farms'') for 11.1 million shares of Smithfield Foods, Inc common
stock and the assumption of approximately $203 million in debt, plus
other liabilities. As previously announced, Murphy Family Farms will
join the Company's other domestic hog production subsidiaries, Brown's
of Carolina, Inc. and Carroll's Foods, Inc., together the three
operations will produce approximately 12 million high quality market
hogs per year.
Going forward, Murphy Family Farms will be conducted as a separate
operating unit of Smithfield Foods that will be managed by its present
management team, which remains substantially intact. “We have worked
very closely with Murphy's for many years and are very comfortable with
their management team”, Joseph W. Luter, III, Chairman and CEO of
Smithfield Foods, said. He also noted that “Given the current outlook
for hog prices over the next 12 months and our anticipated raising
costs, we expect this acquisition to be immediately accretive to
earnings.” He further stated that this “substantially completes our
long-term goal of vertical integration and allows us to continue
producing the most consistent and leanest pork on the market today.”
February 25: Stock price hits new 52-week low ($14.875)
February 28: Smithfield Foods, Inc. Announces the Expansion of Its
Genetic Development Program
Smithfield announced that it has restructured NPD (USA) as a separate
company within the Smithfield Foods group of companies. Mr. John Carter,
currently employed by NPD (USA) has been named the General Manager of
the new NPD (USA). The Company is also pleased to announce that Dr.
Thomas Long, formerly Assistant Professor/Swine Specialist at the
University of Nebraska, has joined NPD (USA) as Director of Genetics and
In addition, NPD (USA) has entered into an agreement with Mr. Stephen
Curtis, Executive Chairman of the Agricultural Contract & Marketing
Company Ltd. (ACMC) to provide management assistance in accelerating the
future development of NPD's current lines of lean hogs and in developing
a world class technical and management team. Prior to the acquisition of
the National Pig Development Company (UK) by the Pig Improvement Company
(PIC), Mr. Curtis was the Managing Director of NPD (UK).
In 1991, Smithfield Foods obtained exclusive rights in the United States
and Mexico for the NPD hog from the National Pig Development Company, a
British firm. The NPD hog is the leanest hog in large-scale commercial
production in the United States. This breeding line provides the genetic
foundation for Smithfield Lean Generation Pork(TM), the first national
branded fresh pork. The Smithfield Lean Generation Pork(TM) Program
remains the nation's leading branded fresh pork program and contains
over 80 items in its product line, half of which are certified for
inclusion on a list of heart healthy foods under the American Heart
Association's Heart Check Program.
February 29: Smithfield Foods Reports Third Quarter Earnings
Smithfield reported earnings for the third quarter ending January 30,
2000. Net income in the third quarter was $17.5 million, or $.36 per
diluted share, compared to $55.0 million, or $1.31 per diluted share, in
the record third quarter a year ago.
Net income in the first nine months of fiscal 2000 was $46.6 million, or
$.98 per diluted share, compared with net income of $68.1 million, or
$1.69 per diluted share, in the same period a year ago. The substantial
decrease in net income reported for the third quarter was primarily due
to sharply lower margins on fresh pork compared to record margins last
year. Live hog prices were 74% higher in the current quarter than in the
same quarter last year. While this rebound in hog prices resulted in a
positive swing in profitability in the Company's Hog Production Group,
it was not sufficient to offset the pressure on meat margins. In
addition to the shortfall in fresh pork, processed meats margins were
also below last year's levels due to sharply higher raw material costs
and continuing aftereffects from the severe flooding experienced by the
Company's hog farms and ham processing facilities in North Carolina last
Sales for the third quarter of fiscal 2000 were $1.4 billion, up from
$1.0 billion in the same period last year. The increase in sales
includes a 20% increase in unit selling prices and a 6% increase in unit
volumes of fresh and processed pork. Product mix was also favorable as
processed meats tonnage was up 21% while fresh pork tonnage declined 4%.
This mix change reflects a strategic thrust by the Company to increase
production of processed meats.
Sales for the first nine months of fiscal 2000 were $3.7 billion,
compared to $2.8 billion in the same nine-month period a year ago. This
increase in sales is due to an 11% increase in unit selling prices in
the Meat Processing Group combined with a 43% increase in processed
meats tonnage and a 4% increase in fresh pork tonnage. Acquisitions
contributed significantly to this growth.
The Meat Processing Group reported an operating profit of $41.5 million
in the third quarter of fiscal 2000 compared with $128.7 million in the
Higher hog prices in the third quarter did lead to a turnaround in
profitability in the Hog Production Group (HPG) which reported an
operating profit of $13.0 million compared to a $24.7 million loss last
year reflecting again the benefits of the Company's strategy of vertical
integration. The HPG third quarter results also benefited from one
month's contribution from the Company's latest acquisition, Murphy
Family Farms, which was immediately profitable and accretive to
"Naturally, we are disappointed with the third quarter", said Joseph W.
Luter, III, chairman and chief executive officer. "Earnings in the meat
processing industry have historically been volatile. However, as a
result of the Murphy acquisition we are now 60% vertically integrated
which will dramatically reduce swings in quarterly profitability. In any
case, Smithfield Foods has had only two down quarters in the past four
years. We view our most recent down quarter as a temporary bump in the
road and fully expect that most future quarters will compare favorably
as they have in the past."
He further noted, "The last 18 months has been a period of tremendous
growth with eleven acquisitions which have taken us into international
markets, given us more balanced production and given us a high level of
vertical integration. We continue to be very optimistic about our future
earnings potential. If the futures markets are correct, there will be a
further dramatic increase in profitability from hog production next year
and fiscal 2001 should be the best year in the Company's history."
March 3: Gwaltney of Smithfield, Ltd. Announces the Acquisition of
Coddle Roasted Meats
Gwaltney of Smithfield, Ltd., a wholly owned subsidiary of Smithfield
Foods, Inc., today announced that it has acquired Coddle Roasted Meats
of Portsmouth, Virginia. Coddle Roasted Meats was formed in 1997 by a
management buyout of Doughties Manufacturing Specialty Meats which was
founded in 1952.
The principals, Skip Cothran and Bruce Biddle, successfully expanded
Coddle's marketing niche in co-packing, national accounts and military
sales achieving profitability within two years after the buyout and
further achieving a dramatic increase in sales volume last year. All
Coddle personnel are joining the Gwaltney team.
This acquisition will allow Gwaltney Foodservice to further enhance its
line of processed meats and will also provide additional product
development capabilities to their existing program. The Coddle sales
organization will report to Lin Gupton, Gwaltney Vice
President-Foodservice. ``We are excited about the opportunities this
acquisition will give us in creating new value added products and
service for our Foodservice customers'', said Tim Seely, president and
chief operating officer of Gwaltney of Smithfield, Ltd.
Thursday March 23: Farmland to sell Iowa pork plant to Smithfield
Farmland Industries said on Thursday it plans to sell its Dubuque, Iowa,
pork processing plant to Smithfield Foods Inc. (NYSE:SFD - news), the
largest U.S. pork producer.
The all-cash transaction, due to close on or about May 15 at the
conclusion of a 60-day option period, will further strengthen
Virginia-based Smithfield's market-leading share of the pork industry,
which has drawn fire from Iowa officials.
Terms of the deal were not disclosed.
Smithfield's aggressive acquisitions in the pork industry have made it a
lightning rod of critics who say rising corporate concentration of
ownership in U.S. agriculture is driving family farmers out of business.
Last month, Iowa Attorney General Tom Miller filed a lawsuit to
challenge Smithfield's January takeover of Murphy Farms Inc, the
second-biggest pork producer and an operator of Iowa hog farms.
Iowa's corporate farming law was enacted in 1977 and bans pork and beef
processors from owning, controlling or operating feedlots in the state.
Eric Tabor, Miller's chief of staff, said Smithfield's latest move did
not appear to be a violation of the Iowa law.
"We have been assured that none of the hogs involved with the former
Murphy Family Farms, now Stoecker Farms, will be slaughtered at the
Farmland plant if Smithfield does indeed acquire it," Tabor said.
Smithfield said it will use the 60-day option period to evaluate the
plant to determine what modifications and renovations are required.
``If the option is exercised, Smithfield expects to expand the processed
meat business at the plant,'' the company said in a statement.
Farmland officials said the Dubuque facility has a daily hog slaughter
capacity of 8,000 animals.
That would bring Smithfield's total hog capacity to more than 90,000
hogs a day, or a quarter of the total daily U.S. hog slaughter of about
Farmland, the large farmer-owned cooperative, owns three other pork
plants besides the Dubuque facility. The plant's age made it a costly
candidate for modernization and expansion efforts, Farmland said.
Refrigerated Foods Group President Bill Fielding called the sale of the
plant "the first step in an overall plan to strengthen our pork
The plan calls for launching an expansion and modernization of a
Farmland processing plant in Crete, Nebraska. Its other plants are in
Monmouth, Illinois, and Denison, Iowa.