Smithfield Foods, Inc. · NASDAQ:SFD
Smithfield Foods — Morgan Stanley Leveraged Finance Conference 2014
27 slides from Smithfield Foods's conference presentation, Jun 12, 2014
Slide 1: Morgan Stanley Leveraged Finance Conference
MORGAN STANLEY LEVERAGED FINANCE CONFERENCE Kenneth M. Sullivan Chief Financial Officer June 12, 2014
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 ($ mm) FY 10 FY 11 FY 12 FY 13 Net income ($101.4) $521.0 $361.3 $183.8 Add: Interest 266.4 245.4 176.7 168.7 Add: Income tax (113.2) 236.1 172.4 46.1 Add: Depreciation and amortization 242.3 231.9 242.8 239.9 EBITDA $294.1 $1,234.4 $953.2 $638.5 Adjustments: Loss
Slide 4: Company Overview
Smithfield. COMPANY OVERVIEW
Slide 5: Smithfield – Part of WH Group – Is Undisputed Market Leader with Global Footprint
5 SMITHFIELD – PART OF WH GROUP – IS UNDISPUTED MARKET LEADER WITH GLOBAL FOOTPRINT FL TX OK KS NE SD CO UT CA PA MA VA OH IN IL NC SC MO IA MN WI GA China US Europe 100% 37% 73.3% Affiliate in Europe (Campofrio) Asia’s Largest Meat Company US’s Largest Pork Company Europe’s Largest Packaged Meats C
Slide 6: Smithfield: Largest and Leading Platform in Pork Industry
6 SMITHFIELD: 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 894,000 sows Proprietary breeding stock enables Smithfield to market highly differentiated pork
Slide 7: Portfolio Perspective on Smithfield Foods
7 PORTFOLIO PERSPECTIVE ON SMITHFIELD FOODS Produced 16.2 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: Overview of Pork Segment
8 OVERVIEW OF PORK SEGMENT 70% OF SALES Fresh Pork (32% of Sales) Packaged Meats (38% of Sales) Key Figures $5.3bn sales 3.8bn pounds $113mm operating profit $4 / head $8 / head CY14 Q1 $5 – $10 / head normalized range $6.5bn sales 2.8bn pounds growing at 2% – 3% / year $392mm oper
Slide 9: Overview of Hog Production Segment
9 OVERVIEW OF HOG PRODUCTION SEGMENT 20% OF SALES Sales: $3.4 billion Volume: 16.2 million hogs Assured supply of consistent, high quality and traceable raw material to Pork segment Specialized breeding stock produces leanest hogs commercially available Emphasize vertical integration to en
Slide 10: Overview of the International Segment
10 OVERVIEW OF THE INTERNATIONAL SEGMENT 10% OF SALES #1 France UK #1 Spain #1 P o rt u ga l #1 Italy #1 Romania #1 Poland Germany #1 Belgium #1 Netherlands TTM CY14Q1 International Segment Sales $1.6 billion Operating Profit $83 million Locations Europe & Mexico Wholly owned operations 37% Ownershi
Slide 11: Financial Results & Credit Metrics
FINANCIAL RESULTS & CREDIT METRICS 11
Slide 12: Record 2014 First Quarter Results
12 $196 $59 CY14 CY13 +234% $180 $129 CY14 CY13 Pork +40% $59 $22 CY14 CY13 Fresh Pork +171% $9 $(60) CY14 CY13 Hog Production … $121 $107 CY14 CY13 Packaged Meats +13% $37 $14 CY14 CY13 International +158% RECORD 2014 FIRST QUARTER RESULTS 2014 FIRST QUARTER HIGHLIGHTS •Net income +479% to first qu
Slide 13: Strong Fundamentals, Organic Growth Initiatives and Synergies Should Fuel Improved Results
13 STRONG FUNDAMENTALS, ORGANIC GROWTH INITIATIVES AND SYNERGIES WITH WH GROUP SHOULD FUEL SIGNIFICANTLY IMPROVED FULL YEAR 2014 RESULTS Segment CY14Q1 Results Pre-Merger Normalized Operating Profit and Margin % Ranges Volume CY14 Forecast Hog Production $2 per head 1% $10 per head average across cy
Slide 14: Annual EBITDA Averages $1 Billion Through Business Cycle
14 ANNUAL EBITDA AVERAGES $1 BILLION THROUGH BUSINESS CYCLE Note: Refer to non-GAAP measure reconciliations
Slide 15: Separate Balance Sheets, Consistent Financial Policy
15 SEPARATE BALANCE SHEETS, CONSISTENT FINANCIAL POLICY RING-FENCED BALANCE SHEET • Strong management team that has built business over 30 years • Business growth has been funded through equity and operating cash flow generation • Historically, no use of leverage to fund growth or return of capital
Slide 16: Significant Progress Towards Deleveraging Goal
16 SIGNIFICANT PROGRESS TOWARDS DELEVERAGING GOAL $2,505 $3,428 ~ $3,100 <$2,500 April 2013 September 2013 (Merger Closing) Early June 2014 Goal Gross Debt & Capital Leases ($bn) Acquisition debt Reduced debt over $300 million in 8 months Return to pre- merger debt levels within 18-24 months post-me
Slide 17: Smithfield Returning to Pre-Merger Credit Quality
17 48% 41% 44% FY10 FY13 CY14Q1 CY14E Net Debt to Capital Goal of <40% $2.5 $2.2 $3.3 FY10 FY13 CY14Q1 CY14E Net Debt ($bn) 1 Goal of <$2.5bn gross debt SMITHFIELD RETURNING TO PRE-MERGER CREDIT QUALITY $1.2 $1.6 $0.8 FY10 FY13 CY14Q1 CY14E Liquidity ($bn) Goal of $0.5-1.0 bn 6.9x 2.9x 4.1x FY10 FY1
Slide 18: Growth Initiatives
Smithfield. GROWTH INITIATIVES
Slide 19: Significant Growth Potential of Our Packaged Meats Platform
19 SIGNIFICANT GROWTH POTENTIAL OF OUR PACKAGED MEATS PLATFORM $347 $402 $470 6.1% 6.7% 7.6% FY11 FY12 FY13 Packaged meats profitability has improved, but significant growth potential remains Operating Profit ($ mm) Operating Margin (%) $3.03 $3.93 $4.35 $5.07 Hillshire Oscar Mayer Hormel Sizeable o
Slide 20: Fresh Pork Growth Opportunities in Export Markets
20 FRESH PORK GROWTH OPPORTUNITIES IN EXPORT MARKETS $0.71 $0.62 $0.75 $0.72 $1.09 $1.12 $0.95 $1.28 $1.42 $0.66 C h ile Bra zi l EU M ex ic o C h in a A u stral ia V ie tn am K o re a Ja p an Live Hog Price ($/lb) US Live Hog Price 3 Year Avg ($/lb) 29 % 19 % 25 % 28 % 32 % 35 % 50 % 75 % Gl o b al
Slide 21: China Represents a Particularly Huge Growth Opportunity for Smithfield
21 CHINA REPRESENTS A PARTICULARLY HUGE GROWTH OPPORTUNITY FOR SMITHFIELD Source: Frost & Sullivan 53.9 111.3 China US Average protein consumption in 2012 (kg) PRC pork consumption 2012-2018E CAGR=3.08% In 2012, 75.34% of global pork consumption growth came from China Per capita pork consumption is
Slide 22: Synergy Opportunities for Smithfield as Part of WH Group
22 SYNERGY OPPORTUNITIES FOR SMITHFIELD AS PART OF WH GROUP Direct sale of fresh pork Use in production of Shuanghui packaged meats Use in production of Smithfield high-end products 1 2 3 Fresh Pork Onshore Reduce domestic supply to improve and stabilize profitability Chilled & Frozen Preferred supp
Slide 23: Access to Largest Cold Chain Logistics Network in China
23 ACCESS TO LARGEST COLD CHAIN LOGISTICS NETWORK IN CHINA AND ROBUST SALES AND DISTRIBUTION NETWORK IS GAME CHANGER Logistics Coverage Distribution Center Dedicated rail lines • Covering 31 provinces in China • Over 630,000 POS China Packaged Meats Sales Network • Covering 27 provinces in China • O
Slide 24: US Pork Market Is Inelastic; Margin Responds Positively to China Exports
24 US PORK MARKET IS INELASTIC MARGIN RESPONDS POSITIVELY TO CHINA EXPORTS $(40.00) $(30.00) $(20.00) $(10.00) $- $10.00 $20.00 $30.00 Ja n u ar y Fe b ru ar y M arc h Ari l M ay Ju n e Ju ly A u gu st Se p te m b e r Oct o b e r N o ve m b e r D e ce m b er 2007 EXPORT IMPACT Implied impact from ex
Slide 25: Growth Initiatives & Synergies Expected to Improve Margins by 100–200 bps
25 Segment Pre-Merger Operating Profit and Margin % Ranges Estimated Volume Hog Production $10 per head average across cycle Consistent supply of 16 million head Fresh Pork $5-10 per head ~3-6% Stable production at 29 million head Packaged Meats $0.15-0.20 per pound ~7-10% 2.9 billion pounds growing
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