Smithfield Foods, Inc. · NASDAQ:SFD
Smithfield Foods — BMO Capital Markets 2013 Farm to Market Conference
34 slides from Smithfield Foods's conference presentation, May 14, 2013
Slide 1: BMO Capital Markets 2013 Farm to Market Conference
BMO Capital Markets 2013 Farm to Market Conference May 14, 2013
Slide 2: Presenters: C. Larry Pope and Robert W. Manly, IV
C. Larry Pope President and Chief Executive Officer Robert W. Manly, IV Executive Vice President and Chief Financial Officer
Slide 3: Forward-Looking Statements
3 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 4: Non-GAAP Measure Reconciliations
4 Non-GAAP Measure Reconciliations
Slide 5: Non-GAAP Measure Reconciliations (Cont'd)
5 Non-GAAP Measure Reconciliations (Cont’d)
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 enables Smithfield to market highly differentiated pork products U
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: Portfolio Scale in Pork Industry
8 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 9: Comprehensive Brand Strategy
9 Comprehensive Brand Strategy Individually… Powerful brands that play to demographics and regional preferences of key consumer segments Collectively… Portfolio of core brands that make Smithfield the leading supplier to the retail and foodservice channels
Slide 10: Brand Portfolio and Pricing Strategy in Packaged Meats
10 $287 million $432 million $498 million $1.0 billion $60 million $86 million $400 million $328 million $1.3 billion $148 million $91 million $154 million 74% 75% 26% 25% Smithfield Industry Branded Private Label Brand Portfolio and Pricing Strategy in Packaged Meats Balance of Branded vs. Private
Slide 11: Vertical Integration and Control of Supply is Critical for Customers
11 Retail Foodservice Vertical Integration and Control of Supply is Critical for Customers 2 of 5 Largest U.S. Retailers Buying Group Housed Pork from Smithfield at Premium Announcements Regarding Group Housing Key Trends Growing consumer focus on animal care and feed additives Quality assurance
Slide 12: Recent Accomplishments
12 Recent Accomplishments Restructured and streamlined Pork segment; nearly tripled profitability since FY 07 Share, distribution and volume gains in Packaged Meats Reduced commodity exposure by 40% since FY 08 De-levered balance sheet by nearly $2bn since FY 09 and improved ratings with eig
Slide 13: Restructured and Streamlined Pork Group Tripled Profitability Since FY07
13 $185 $316 $386 $495 $347 $402 $464 $34 $141 $97 $78 $406 $222 $149 $219 $457 $483 $573 $753 $624 $613 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 TTM FY 13 Q3 Packaged meats Fresh pork Pork segment adjusted operating profit ($mm) Restructured and Streamlined Pork Group Tripled Profitability Since FY 07 I
Slide 14: Driving Share and Distribution Gains Across the Portfolio
14 18.0% 19.8% 21.5% 12.9% 13.3% 14.6% 9.0% 14.1% 14.9% 11.0% 11.3% 12.7% 2009 2012 2013 2009 2012 2013 2009 2012 2013 2009 2012 2013 #1 #2 #2 #2 Driving Share and Distribution Gains Across the Portfolio Consistent Growth Since 2009 Restructuring Source: Information Resources Inc. (IRI) 52 weeks end
Slide 15: Driving Significant Volume Growth in Packaged Meats
15 Driving Significant Volume Growth in Packaged Meats Source: Internal shipment data for YTD FY 13 Q3 YOY Packaged Meats volume 9% 8% 7% 6% 5% 4% 3% 2% 2% YTD FY 13 Q3 YOY % pound change 4% 5% 7% 4% Retail Foodservice Deli Total Core Brand Volume Growth Gains Across All Key Trade Channels Source: I
Slide 16: Dramatically Reduced Exposure to Commodity Input Costs
16 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 17: Meaningfully De-Levered the Balance Sheet
17 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 18: Upwards Ratings Trajectory Greatly Enhanced Credit Profile
18 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 19: Returned $576 Million of Cash to Shareholders Since FY11
19 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 20: Strategic Growth Plan
20 Strategic Growth Plan Increased capital investment to improve competitive cost structure and achieve least cost/best in class operations Continued higher investment in direct to consumer marketing programs to build brand equity and grow sales Establish a culture of innovation to build strong prod
Slide 21: Pillars of Strategic Growth Plan
21 I Focus on Organic Growth Potential Pursue Diversified M&A Strategy in Packaged Meats and Value-Added Products II Pillars of Strategic Growth Plan I Increased capital investment to improve competitive cost structure and achieve least cost / best in class operations Continued higher investment in
Slide 22: Invest to Create Margin Improvement Potential
22 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 23: Continued Investment in Consumer Marketing and Innovation
23 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 24: Key Focus Areas for Product Innovation
24 Key Focus Areas for Product Innovation Examples Packaging Packaging differentiation highlighting quality and convenience Packaging technology establishing new features and benefits Health and Wellness Meeting consumer demand for better-for-you foods Lower in sodium, lean protein, natural
Slide 25: Branding Our Farms
© Branding Our Farms Smithfield.
Slide 26: Pursue Selective M&A Opportunities
26 Pursue Selective M&A Opportunities 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 sausages with Smithfield core brands to gain margin and
Slide 27: Fresh Pork Has Significant Growth Opportunity in Exports
27 Fresh Pork Has Significant Growth Opportunity in Exports 30 % 57 % 42 % 38 % 32 % 30 % 20 % 18 % Gl o b al P h ill ip in es R u ssi a C h in a/ H K Ja p an M ex ic o K o re a Ca n ad a Smithfield share of U.S. export volume (TTM FY 13 Q3) As largest hog producer in the world, Smithfield is unique
Slide 28: Significant Long Term Growth Potential in Pork and International Segments
28 Significant Long Term Growth Potential in Pork and International Segments Increasing Normalized Ranges in Fresh Pork, Packaged Meats and International Segment Prior Normalized Operating Profit Range NEW Normalized Operating Profit and Margin % Ranges Volume Fresh Pork $3-7 per head $5-10 per head
Slide 29: Hog Production Cyclical but Profitable Across Cycle
29 Hog Production Cyclical but Profitable Across Cycle Setting Normalized Operating Profit at $10 per head Smithfield Hog Production Adjusted Operating Profit per Head $13 $23 $21 $(7) $10 $31 $23 $16 $(1) $(26) $(28) $14 $13 $(6) $7 $11 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY
Slide 30: Export Market Disruptions Negatively Impacting Hog Prices and Pork Cutout
30 Export Market Disruptions Negatively Impacting Hog Prices and Pork Cutout $70 $75 $80 $85 $90 $95 $50 $55 $60 $65 $70 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 $ /c w t $ /c w t ISM Live Hog Price USDA Pork Cutout Mar China requires third party certification that pork exports are ractopamine-free
Slide 31: Smithfield Is a Growing Business Across the Cycle
31 Continued Solid Results in FY 13 Smithfield Is a Growing Business Across the Cycle Adjusted Operating Profit ($mm) Adjusted EPS ($) Note: Based on fiscal year end of April; Refer to non-GAAP measure reconciliations Commodity Inflation January 2000 to May 2007 Since Equity Offering $176 $346 $375
Slide 32: Growth Drivers for FY14
32 Hog Production Fresh Pork Packaged Meats International Lower raising costs Improved efficiencies and productivity – completed $2/cwt cost savings initiative Initiating new $2/cwt multi- year cost savings program Emphasize vertical integration to enhance the brands Improving product mix
Slide 33: Positive Outlook for FY14
33 Positive Outlook for FY 14 Growth Drivers Across All Segments with Strong Momentum in Packaged Meats Segment FY 13 Q3 YTD Results NEW Normalized Operating Profit and Margin % Ranges Volume FY 14 Forecast Hog Production $(6) per head (3)% $10 per head average across cycle Consistent supply of 16 m
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