Smithfield Foods, Inc. · NASDAQ:SFD
Smithfield Foods — Corporate Update (February 2009)
46 slides from Smithfield Foods's corporate update, Feb 17, 2009
Slide 1: Smithfield Foods, Inc. February 17, 2009
C. Larry Pope President and Chief Executive Officer Robert W. Manly Executive Vice President and Chief Financial Officer Smithfield Foods, Inc. February 17, 2009
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains “forward-looking” statements within the meaning of the federal securities laws. The forward-looking statements include statements concerning the Company’s outlook for the future, as well as other statements of beliefs, future plans and strategies
Slide 3: Agenda
Agenda C. Larry Pope 1. What we have been doing Robert W. Manly 2. Pork Group restructuring plan 3. Financial implications
Slide 4: Agenda (continued)
Agenda C. Larry Pope 4. Current market conditions 5. Bottom line 6. Appendix - - Background • Who we are • Exports
Slide 5: What we have been doing
Smithfield Good food. “Responsibly,
Slide 6: Smithfield's Past Record of Success
Smithfield’s Past Record of Success • Growth through acquisitions • Timely purchases of often distressed assets • Turnarounds with minimal corporate restructuring • Organization emphasized entrepreneurial independence
Slide 7: Financial Strategies for Today and Tomorrow
Financial Strategies for Today and Tomorrow • Focus on ROIC: business unit, plant, product category • Deleverage the balance sheet • Manage liquidity • Focus on integration, not acquisitions • Manage capital expenditures
Slide 8: Operating Strategies for Today and Tomorrow
Operating Strategies for Today and Tomorrow • Focus on improving core packaged meats and fresh pork margins • Restructure Pork Division for higher performance • Shed non-core or under-performing businesses • Consolidate Western European presence into premier packaged meats company • Manage hog produ
Slide 9: Proactively Managing the Business
February 2008 Initial Five Percent Reduction of Smithfield U.S. Sow Herd Reduction of 50,000 sows and production of one million fewer market hogs annually by fiscal 2010 April 2008 Senior Management Changes Strengthened overall management team to improve operations and financial performance July 200
Slide 10: Proactively Managing the Business
July 2008 Sale of 4.95 Percent of Shares to China's COFCO Limited Improved liquidity and created long term relationship with one of China’s leading trading companies October 2008 Sale of Beef Processing and Cattle Feeding Operations to JBS Significantly improved liquidity and refocused on core busin
Slide 11: Proactively Managing the Business
December 2008 Merger of Campofrío and Groupe Smithfield Formed leading European packaged meats company and monetized joint venture into publicly-traded company February 2009 Successfully Negotiated New Covenant Amendments Ensured financial stability through bottom of hog cycle February 2009 Pork Gro
Slide 12: Pork Group restructuring plan
Pork Group restructuring plan
Slide 13: Pork Group Restructuring Plan
Pork Group Restructuring Plan • Streamline Pork Group structure by reorganizing management team under George Richter • Consolidate seven IOC’s into three and close seven processing plants • Merge three fresh pork sales organizations into two and consolidate three overseas export teams into one to im
Slide 14: Pork Group Organizational Structure
The Smithfield Packing Company, Inc. John Morrell & Co. Farmland Foods, Inc. Patrick Cudahy, Inc. North Side Foods Corp. Stefano Foods, Inc. Smithfield RMH Foods, LLC The Smithfield Packing Company, Inc. John Morrell & Co. Farmland Foods, Inc. AFTER BEFORE Pork Group Organizational Structure
Slide 15: Financial implications
Smithfield Good food. “Responsibly,
Slide 16: Estimated Financial Impact of Pork Group Restructuring
Annual EBT improvement $125 million Plant consolidation capital requirements $53 million One time expenses $37 million Asset write-off $73 million Estimated Financial Impact of Pork Group Restructuring
Slide 17: Details of Financial Impact
Restructuring will result in EBT improvement by reducing overhead, SG&A, and variable manufacturing costs Details of Financial Impact
Slide 18: Packaged Meats Margin Growth
Packaged Meats Margin Growth
Slide 19: Improved Liquidity
Smithfield has improved liquidity by more than $650 million plus retirement of $200 million in long term debt since the fourth quarter of fiscal Note: Amounts reflect additional borrowing capacity at quarter end and do not include cash balances reflected on balance sheet Improved Liquidity
Slide 20: New Covenant Amendments in Place
FY09 3Q 1.6:1 FY09 4Q 1.2:1 FY10 1Q 1.35:1 FY10 2Q 1.35:1 FY10 3Q 2.0:1 FY10 4Q to maturity 3.0:1 New Covenant Amendments in Place • Interest coverage covenant • Estimated increase in annual interest expense of $20 -25 million and amendment fees of $12 million
Slide 21: Debt to Total Capitalization
• Reduced debt by $600 million since the fourth quarter of fiscal • Goal is to reduce debt to total capitalization to below 50% Debt to Total Capitalization
Slide 22: Current market conditions
Smithfield Good food. “Responsibly,
Slide 23: Domestic Market Conditions
Domestic Market Conditions • Recession is hurting overall protein demand – How much, which proteins, and which products is not fully apparent • Current government ethanol policy continues to plague protein producers by raising input costs that can not easily be passed on
Slide 24: Domestic Market Conditions
– Foodservice to retail Smithfield mix 25/75 – White table cloth to quick service restaurant QSR higher volume – Trade down the brand ladder Smithfield’s strength is “value brands” Domestic Market Conditions • Consumer trends friendly to Smithfield
Slide 25: Hog Production Industry Forecast
Note: ISM hog prices and industry raising costs are based on the futures curve on 02/06/09 Hog Production Industry Forecast
Slide 26: International Situation Analysis
International Situation Analysis • Smithfield remains optimistic on exports – Pork production declining worldwide – Production in several major importing countries declining – Production in major exporting countries declining – U.S. pork prices are cheap
Slide 27: World Pork Prices
Note: Week ending January 24, 2009 U.S. pork prices are among the lowest on the worldwide market World Pork Prices
Slide 28: U.S. Monthly Pork Exports
U.S. exports of pork and pork variety meats continue to increase year over year Source: USDA Foreign Agricultural Service (FAS) U.S. Monthly Pork Exports
Slide 29: Smithfield Fresh Pork Exports
Note: January FY2009 five weeks versus January FY2008 and January FY2007 four weeks Smithfield fresh pork exports continue at near year ago levels Smithfield Fresh Pork Exports
Slide 30: Top Ten Worldwide Pork Producers
Rank Country 2008 Production (billion lbs) Projected change 2008 to 2009 1 China/HK 96.6 0% 2 EU-27 49.2 -6% 3 United States 23.5 -4% 4 Brazil 6.7 -1% 5 Russian Federation 4.5 4% 6 Vietnam 4.1 -3% 7 Canada 4.1 -10% 8 Japan 2.7 -5% 9 Philippines 2.6 -5% 10 Mexico 2.5 -9% Other 14.9 0% Total 213.2 -2%
Slide 31: Bottom line
Smithfield Good food. “Responsibly,
Slide 32: Bottom Line
Bottom Line • Input costs have declined in both the hog production and pork processing businesses and are expected to remain below year ago levels – Corn and soybean meal - lower raising costs – Oil - - lower transportation, overhead, and packaging costs • Worldwide protein supplies are shrinking –
Slide 33: Bottom Line
Bottom Line • Reduced debt by $600 million and improved liquidity by more than $650 million since the fourth quarter of fiscal 2008 to strengthen the balance sheet • Shed non-core beef and cattle feeding businesses • Restructuring Pork Group to streamline reporting structure and improve annual EBT b
Slide 34: Bottom Line
Bottom Line • Monetized our investment in Western Europe and consolidated the businesses into one publicly- traded major packaged meats company • Reduced our U.S. sow herd by ten percent to reduce exposure and improve efficiency • Market conditions appear to be moving in the right direction with low
Slide 35: Smithfield
Smithfield Jo
Slide 36: Appendix
Smithfield Good food. “Responsibly,
Slide 37: Background: Who we are
Smithfield Good food. “Responsibly,
Slide 38: Market Leader: Hog Production
#1 Hog Production * Sales: $2.4 billion Operating Loss: $(98.1) million • World’s largest hog producer • Produced 19 million hogs domestically in FY08 • Produced 1.6 million hogs in Poland and Romania in FY08 *Note: Fiscal 2008 sales and operating loss Source: United States Industry Data Successful
Slide 39: Market Leader: Pork
#1 Pork * Sales: $9.6 billion Operating Profit: $449.4 million • World’s largest pork processor • Processed 31 million hogs in FY08 • Sold approximately 4.0 billion pounds of fresh pork in FY08 • Sold approximately 3.1 billion pounds of packaged meats in FY08 *Note: Fiscal 2008 sales and operating p
Slide 40: Market Leader: Turkey Processing
#1 Other Segment * Sales: $149 million Operating Profit: $28.2 million • Comprised of turkey production operations and Butterball joint venture • Butterball is the largest turkey processor in the U.S. • Butterball processed 54 million turkeys in FY08 *Note: Fiscal 2008 sales and operating profit Sou
Slide 41: Market Leadership: International
International * Sales: $1.2 billion Operating Profit: $76.9 million • Subsidiaries in Poland, Romania and the United Kingdom • 37% ownership of Campofrío Food Group (public company) with production facilities in Belgium, France, Italy, The Netherlands, Portugal and Spain • Joint ventures or major in
Slide 42: Campofrío Food Group - Dominant Brands
1 Pro-forma combined figure as of December 2007 2 Based on February 6, 2009 closing price Campofrío Food Group - Dominant Brands • Leading European packaged meats company, and one of the largest worldwide with sales of €2.1 billion 1 • Smithfield owns 37% of publicly-traded company • Current market
Slide 43: Exports
Smithfield Good food. “Responsibly,
Slide 44: Top Five Worldwide Pork Importers
Rank Country 2008 Imports (billion lbs) Imports % of Domestic Production Projected Change in Domestic Production 1 Japan 2.8 100% -5% 2 Russian Federation 2.1 46% 4% 3 China/HK 1.9 2% 0% 4 Mexico 1.2 47% -9% 5 Korea 1.0 43% -2% Other 3.9 - - Total 12.8 - - • Top five pork importers account for 70% o
Slide 45: Top Five Worldwide Pork Exporters
Rank Country 2008 Exports (billion lbs) Projected change 2008 to 2009 1 United States 5.3 -4% 2 EU-27 3.4 -6% 3 Canada 2.4 -10% 4 Brazil 1.5 -1% 5 China/HK 0.4 0% Other 0.7 - Total 13.6 - • Top five pork exporters account for 95% of all international pork trade • With exception of China, all exporte
Slide 46: Smithfield
Smithfield Jo