Smithfield Foods, Inc. · NASDAQ:SFD
Smithfield Foods — Investor Presentation (April 2013)
51 slides from Smithfield Foods's investor presentation, Apr 1, 2013
Slide 1: Investor Presentation April 1-3, 2013
Investor Presentation April 1-3, 2013
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements This presentation contains “forward-looking” statements within the meaning of the federal securities laws. The forward-looking statements include statements concerning our outlook for the future, as well as other statements of beliefs, future plans and strategies or anti
Slide 3: Non-GAAP Measure Reconciliations
3 Non-GAAP Measure Reconciliations
Slide 4: Table of Contents
Table of Contents I. Smithfield Strategic Positioning II. Portfolio and Scale in Pork Industry III. Recent Business Developments IV. Current Market Fundamentals V. Strategic Growth Plan
Slide 5: I. Smithfield Strategic Positioning
I. Smithfield Strategic Positioning
Slide 6: Largest and Leading Platform in Pork Industry
6 Largest and Leading Platform in Pork Industry More than 2x size of next largest competitor 1 Bigger than next 3 largest competitors combined 1 Numerous facilities with approximately 851,000 sows Specialized breeding stock produces leanest hogs commercially available U.S. leader by wide m
Slide 7: Portfolio Perspective on Smithfield Foods
7 Portfolio Perspective on Smithfield Foods Produced 15.8 million hogs Assured supply of consistent, high quality and traceable raw material to Pork segment Smithfield is roughly 50% vertically integrated Unique selling proposition for products and brands 3.8 billion pounds sold Processe
Slide 8: Management Focus
8 Management Focus De-levered balance sheet and improved ratings Reduced commodity exposure Restructured and streamlined Pork segment; nearly tripled profitability since FY 07 Volume, share and distribution gains in Packaged Meats Executed on value-enhancing portfolio opportunities Two b
Slide 9: Strategic Priorities
9 Strategic Priorities Continued higher investment in direct to consumer marketing programs to build brand equity and grow sales Establish a culture of innovation to build strong product pipeline to drive Packaged Meats volume and margin Emphasize Hog Production assets as strategic point of differen
Slide 10: II. Portfolio and Scale in Pork Industry
II. Portfolio and Scale in Pork Industry
Slide 11: Portfolio Scale in the Pork Industry
11 44 % 37 % 22 % 21 % 17 % 16 % 15 % 15 % 9 % 9 % Sp e cialt y H am C u ts Sm o ke d H am s Ba co n M ari n at ed P o rk B B Q M ea ts Di n n er Sa u sag e P o rt ab le Lu n ch es Dr y S au sa ge M e at b al ls Se rv ic e D e li Source: Information Resources, Inc. (IRI) 13 weeks ending 02/24/13 and
Slide 12: Overview of Hog Production Segment
12 Overview of Hog Production Segment Sales: $3.1 billion Volume: 15.8 million hogs Assured supply of consistent, high quality and traceable raw material to Pork segment Specialized breeding stock produces leanest hogs commercially available Unique selling proposition for products and bran
Slide 13: Vertical Integration and Control of Supply is Critical for Customers
13 Overview of Hog Production Segment Vertical Integration and Control of Supply is Critical for Customers Announcements Regarding Group Housing Key Trends Growing consumer focus on animal care and feed additives Quality assurance and traceability have become key purchasing decisions Customers
Slide 14: Internal Sourcing is Critical to Ensure Supply in Key Regions
14 Overview of Hog Production Segment Internal Sourcing is Not a Policy but Critical to Ensure Supply in Key Regions 95 % 94 % 73 % 73 % 57 % 18 % 13 % 10 % Plant 1 Plant 2 Plant 3 Plant 4 Plant 5 Plant 6 Plant 7 Plant 8 % o f in te rn al ly s o u rced h ogs 1 East Coast Plants Midwest Plants Smithf
Slide 15: Cyclical but Profitable Across Cycle
15 $0.13 $45.58 $12.61 $25.99 $38.05 ($4.31) ($2.77) $3.13 $31.66 ($10.50) $0.84 ($0.84) $34.19 $27.58 ($8.26) $8.19 $31.76 $8.50 $7.20 $7.06 ($12.19) $2.04 $9.30 ($1.94) ($28.49) ($3.64) $11.41 $4.80 ($11.06) $7.13 $28.90 $27.96 $15.07 ($5.08) ($23.05) ($14.63) $11.31 $3.15 1 9 7 5 1 9 7 6 1 9 7 7
Slide 16: Exogenous Factors Have Put Pressure on Margins
16 Overview of Hog Production Segment Exogenous Factors in Last 5 Years Have Put Pressure on Margins 1.6 4.5 $2.26 $6.94 2005 2012 Ethanol Corn Usage (bln bu) Corn ($/bu) +207% +40% Corn ($/bu) Live hog price ($/cwt) 2005 to 2012 % Change Ethanol is the Main Culprit Corn Price Inflation Has Far Outp
Slide 17: Improving Corn and Hog Price Fundamentals
17 Overview of Hog Production Segment Improving Corn and Hog Price Fundamentals Will Drive Better Results Going Forward Corn Fundamentals Global corn supply is growing Corn demand has stabilized Ethanol demand has reached plateau Livestock demand is lower Alternate feed usage including sor
Slide 18: Perspective on Vertical Integration
18 Overview of Hog Production Segment Perspective on Vertical Integration Provides access to quality supply of pork Specialized breeding stock produces leanest hogs commercially available Assures supply of consistent, high quality and traceable raw material to Pork segment Unique selling pro
Slide 19: Perspective on Potential Separation
19 Overview of Hog Production Segment Perspective on Potential Separation Profit cycle in Hog Production partially offsets cycle in Fresh Pork Separation of Hog Production only would leave behind cyclical Fresh Pork with Packaged Meats Financial profile does not replicate stability of typical
Slide 20: Perspective on Potential Separation
20 Overview of Hog Production Segment Perspective on Potential Separation Smithfield continuously evaluates the appropriate balance and alignment between production and processing assets Major customers have reached out and suggested that Smithfield should not let go of its farms Meaningful ongo
Slide 21: Overview of Pork Segment
21 Overview of Pork Segment 71% of Sales Fresh Pork (33% of Sales) Packaged Meats (38% of Sales) Key Figures $5.1bn sales 3.8bn pounds $222mm operating profit $8 / head $3 – $7 / head normalized range $6.0bn sales 2.7bn pounds growing at 2% – 3% / year $402mm operating profit $0.15
Slide 22: Fresh Pork Has Significant Growth Opportunity in Exports
22 Overview of Pork Segment Fresh Pork Has Significant Growth Opportunity in Exports Low Cost Producer #1 U.S. Pork Exporter $0.63 $0.71 $0.73 $0.76 $0.84 $0.90 $0.94 $0.94 $1.20 $1.26 $0.58 M e xic o Chil e Bra zi l EU Vi e tn am R u ss ia Kor e a Chi n a A u str al ia Ja p an Live Hog Price ($ per
Slide 23: Brand Portfolio and Pricing Strategy in Packaged Meats
23 74% 75% 26% 25% Smithfield Industry Branded Private Label Overview of Pork Segment Brand Portfolio and Pricing Strategy in Packaged Meats Balance of Branded vs. Private Label Pricing Segmentation Among Core Brand Portfolio $287 million $432 million $498 million $1.0 billion $148 million $154 mill
Slide 24: Overview of the International Segment
24 #1 France UK #1 Spain #1 P o rt u ga l #1 Italy #1 Romania #1 Poland Germany #1 Belgium #1 Netherlands Overview of the International Segment TTM FY 13 Q3 International Segment Sales $1.4 billion Operating Profit $119.7 million Locations Europe & Mexico Note: TTM FY 13 Q3 sales (before inter-segme
Slide 25: III. Recent Business Developments
III. Recent Business Developments
Slide 26: Key Recent Accomplishments
26 Key Recent Accomplishments De-levered the balance sheet and improved ratings Reduced commodity exposure Restructured and streamlined Pork segment; nearly tripled profitability since FY 07 Volume, share and distribution gains in Packaged Meats business Executed on value-enhancing portfolio opportu
Slide 27: Meaningfully De-Levered the Balance Sheet
27 Meaningfully De-Levered the Balance Sheet Net Debt ($bn) Net Debt to TTM Adjusted EBITDA Liquidity ($bn) Net Debt to Capitalization Note: Net debt is equal to notes payable & long-term debt & capital lease obligations, including current portion, less cash & cash equivalents; Liquidity representat
Slide 28: Upwards Ratings Trajectory Greatly Enhanced Credit Profile
28 Fitch Upgraded to B+ Moody’s Upgraded to B1 Stable Standard & poor’s Upgraded to B+ Moody’s Upgraded to Ba3 Standard & poor’s Upgraded to BB- Fitch Upgraded to BB- Standard & poor’s Upgraded to BB Fitch Upgraded to BB Jan-2011 Feb-2011 Mar-2011 Aug-2011 Oct-2011 Jan-2012 Mar-2012 Jul-2012 Upwards
Slide 29: Dramatically Reduced Exposure to Commodity Input Costs
29 Dramatically Reduced Exposure to Commodity Input Costs Lowered domestic corn market exposure by more than 40% since FY 08 FY 08 – Beef Group divestiture FY 09 – U.S. sow herd reduction FY 11 – Sale of turkey interests and non-core hog farms Risk management strategy to lock in margins an
Slide 30: Restructured and Streamlined the Pork Group
30 Restructured and Streamlined the Pork Group Impact of Restructuring on Profitability 3 $ 0 .0 5 $ 0 .0 6 $ 0 .1 2 $ 0 .1 7 $ 0 .1 7 $ 0 .1 9 $ 0 .1 7 $ 0 .1 4 $ 0 .1 1 $ 0 .1 2 $ 0 .1 6 $ 0 .1 2 $ 0 .1 7 $ 0 .1 1 $ 0 .1 5 $ 0 .1 6 $ 0 .2 1 $ 0 .1 5 $ 0 .1 5 2.7% 3.0% 6.9% 9.9% 8.8% 10.5% 10.4% 7.
Slide 31: Drove Significant Volume Growth in Packaged Meats
31 Drove Significant Volume Growth in Packaged Meats Source: Internal shipment data for retail Packaged Meats 12% 11% 10% 9% 6% 5% 4% 2% 2% FY 13 Q3 YOY % pound change 4
Slide 32: Drove Share and Distribution Gains Across the Portfolio
32 18.0% 19.8% 12.9% 13.2% 9.0% 14.1% 11.0% 11.3% 2009 2012 2009 2012 2009 2012 2009 2012 Drove Share and Distribution Gains Across the Portfolio 2009 Versus 2012 Since Restructuring Source: Information Resources Inc. (IRI) 52 weeks ended calendar 2009 and 2012 4 #1 Share #2 Share #2 Share #2 Share
Slide 33: Executed on Value-Enhancing Opportunities
33 Executed on Value-Enhancing Opportunities 5 Beef Group Divestiture Pork Restructuring Butterball Divestiture Dalhart, TX Divestiture Texhoma, OK Divestiture FY 09 FY 09 FY 11 FY 11 FY 11 • Divested Smithfield Beef Group to JBS for $576 million in cash • Proceeds used to pay down debt and increase
Slide 34: Achieved Record Operating Results
34 Achieved Record Operating Results in FY 11 and FY 12 Adjusted Operating Profit ($mm) Adjusted EPS ($) Note: Based on fiscal year end of April Commodity Inflation January 2000 to May 2007 Since Equity Offering 6 $176 $346 $375 $29 $291 $596 $457 $427 $418 $(117) $152 $977 $803 2000 2001 2002 2003
Slide 35: Returned $576 Million of Cash to Shareholders
35 Returned $576 Million of Cash to Shareholders Since FY 11 Note: Quarters correspond to Smithfield fiscal year. Quarterly share repurchase data for Hormel and Tyson representative of comparable financial quarters. Total cash returned to shareholders (dividends plus $ amount of shares repurchased)
Slide 36: Share Price Up More Than 90% Since Equity Offering
36 Share Price Up More Than 90% Since Equity Offering Source: Bloomberg 8 (20)% 0% 20% 40% 60% 80% 100% 120% Sep-2009 Apr-2010 Nov-2010 Jun-2011 Jan-2012 Aug-2012 Mar-2013 In d e xe d P ri ce Daily from 15-Sep-2009 to 22-Mar-2013 Smithfield S&P 500 Index 91.5% 47.9% $26.22 $1,557 7-Mar-2013 Received
Slide 37: IV. Current Market Fundamentals
IV. Current Market Fundamentals
Slide 38: Hog Production Update
38 Hog Production Update $50.00 $55.00 $60.00 $65.00 $70.00 $75.00 $5.50 $5.70 $5.90 $6.10 $6.30 $6.50 $6.70 $6.90 $7.10 $7.30 $7.50 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 $ / cw t $ / b u Nearby Corn Futures Prices ($/bu) Live Hog Prices ($/cwt) Source: ISM live hog prices for Feb-
Slide 39: Update on Export Markets
39 Update on Export Markets Smithfield FY 13 YTD Export Markets by Volume Opportunity in Exports Note: Other category consist of the following countries: Angola, Aruba, Australia, Bahamas, Bermuda, Caribbean, Chile, Columbia, Cost Rica, Croatia, Cuba, Dominican Republic, Ecuador, El Salvador, Guama,
Slide 40: Outpacing Category in Packaged Meats Volume Growth
40 Outpacing Category in Packaged Meats Volume Growth 5% 25% 19% 14% 8% 5% 3% 2% All Brands 17% 70% 25% 19% 14% 2% All Brands 18% 26% 19% 11% 6% All Brands 10% 19% 3% All Brands Source: Information Resources, Inc. (IRI) 13 weeks ending 02/24/13 and Nielsen Perishables Group 13 weeks ending 01/26/13
Slide 41: Continued Distribution and Share Gains
41 +17.1 +16.0 +13.3 +5.6 +3.6 +2.6 Portable Lunches Deli Meats Packaged Lunch Meat Dry Sausage Dinner Sausage Bacon Smithfield Lead Brand (ACV Point Change) Continued Distribution and Share Gains Note: ACV=All Commodity Volume=total U.S. retail dollar sales across all departments; Source: Informati
Slide 42: International Segment Remains Strong
42 $25 $24 $0 $16 $43 $44 $17 $41 $47 1 $35 $45 2 $44 $24 $13 $19 FY 10 FY 11 FY 12 FY 13 Q1 Q2 Q3 Q4 International Segment Remains Strong FY 10 Q3 FY 12 Q3 Operating profit 35.6 6.2 Campofrío charges 11.7 38.7 Adjusted operating profit 47.3 44.9 International Segment Operating Profit ¹ Adjusted for
Slide 43: Continued Positive Outlook
43 Continued Positive Outlook for FY 14 Segment Normalized Operating Profit Range FY 13 YTD Results FY 13 Forecast FY 14 Forecast Hog Production $10-15 per head $(6) per head $(5) +/- per head Below normalized, but improved from FY 13 Fresh Pork $3-7 per head $6 per head Normalized Normalized Packag
Slide 44: V. Strategic Growth Plan
V. Strategic Growth Plan
Slide 45: The Strategic Pillars of Our Plan
45 I Focus on Organic Growth Potential Pursue Diversified M&A Strategy in Packaged Meats and Value-Added Products II The Strategic Pillars of Our Plan I Continued higher investment in direct to consumer marketing programs to build brand equity and grow sales Establish a culture of innovation to buil
Slide 46: Continued Investment in Consumer Marketing and Innovation
46 Continued Investment in Consumer Marketing and Innovation Expanding partnership with Richard Petty Motorsports to include primary sponsorship of the legendary No. 43 Ford in 25 events during the 2013 NASCAR Sprint Cup Series season Eckrich, Farmland, Gwaltney and Smithfield brands will all pa
Slide 47: Capitalize on Innovation Platforms
47 Capitalize on Innovation Platforms Packaging differentiation highlighting quality and convenience Packaging technology establishing new features and benefits Packaging Health and Wellness Convenience Taste Pork Consumer Solutions Meeting consumer demand for better-for-you foods Lower in s
Slide 48: Capitalize on Innovation Platforms (Cont'd)
48 Capitalize on Innovation Platforms (Cont’d) Examples Health and Wellness Platform Packaging Platform Convenience Platform Taste Platform Pork Consumer Solutions Portion Pack Perforated portion packs provide consumers Smithfield bacon in two easy peel pouches, maintaining product freshness and red
Slide 49: Branding Our Farms
© Branding Our Farms 49 Smithfield.
Slide 50: Invest to Create Margin Improvement Potential
50 Invest to Create Margin Improvement Potential Plans to upgrade facilities to improve competitive cost structure and achieve least cost / best-in-class operations Projected $300-350 million annual capex on go-forward basis Capex increases more heavily weighted to packaged meats to drive marg
Slide 51: Pursue Selective M&A Opportunities
51 Pursue Selective M&A Opportunities Smithfield recently announced it has agreed to a 50% investment in Kansas City Sausage Company’s (“KCSC”) sow slaughtering and sausage manufacturing Combines KCSC’s low-cost, efficient operations and high-quality products such as breakfast and dinner sausage
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