Meat + Poultry - September 2006 - 26

Smithfield Foods - Taking the next step
Acquisitions continue fueling the company's growth
By Keith Nunes
knunes@sosland.com

olatility in the protein market
had a vexing effect on Smithfield Foods, Inc., Smithfield,
Va., during its past fiscal year. As the
world's largest pork producer and processor, as well as the nation's fifth-largest beef processor,
the company's financial performance has
been buffeted by market disruptions due to
the spread of highly pathogenic avian
influenza around the
world and the closure
Luter
of foreign markets to
U.S. beef, because of
bovine spongiform
encephalopathy.
As the opportunities for U.S. protein
exporters have been
limited, the amount of
protein available on
the U.S. market has
Pope
risen and driven prices down. The increased market pressure
was reflected in Smithfield's first quarter fiscal 2007 results and its results for
fiscal 2006. For the first quarter, (ended July 30) the company posted net income of $24.6 million, equal to $0.22
per share on the common stock. During the same

period of fiscal 2006, the company's net
income was $49 million, or $0.44 per
share. Sales for the quarter were $2.772
billion, which compared with $2.929
billion for the same period last year.
"We had a respectable quarter even
though the markets were not particularly in our favor," said Joseph Luter
III, chairman, in a conference call with
financial analysts. "Looking forward,
I am optimistic about the fall holiday
season and the overall trend of the
business. A strong hog market and improved fall demand should drive solid
earnings for the full fiscal year."
For fiscal 2006, Smithfield reported
net income of $172.7 million, or $1.55
per share, compared with $296.2 million, or $2.66 per share, for fiscal 2005.
Fiscal 2006 sales were $11.403 billion,
which compared with $11.248 billion
for fiscal 2005.

Smithfield Foods fiscal
2006 operating profit
(in millions)

Year ended April 30

Pork ...............................$153
Beef .................................-2.8
International ...................-15.6
Hog production.................330
Other .................................36
Corporate .......................-79.8
Total ...........................$420.8

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September 2006

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Operating profit for the year by business segments, which include Pork,
Beef, International, Hog Production,
Other and Corporate was mixed. For
the year, the Beef, International and
Corporate segments incurred losses
while Pork, Hog Production and Other
showed profits.
According to the U.S. Dept. of Agriculture's Livestock, Dairy and Poultry
Outlook report, published by the Economic Research Service, protein market pressures may be easing. Chicken
processors, for example, have lowered
the number of chicks being placed for
growout. Based on the reduced number
of placements, as production growth
slows, prices will strengthen.
"I think we've got some good things
in front of us," said Larry Pope, Smithfield's president and C.E.O., during a
conference call with financial analysts
following the release of the company's
fiscal 2006 results. "I think until we
work off these excess proteins there's
going to be pressure passing through
any of these costs," he said. "I am extremely optimistic in terms of where I
think we're going."

Growth through acquisition
Smithfield's history is defi ned by
acquisitions. In order to maintain and
grow through vertical integration Smithfield has had to constantly find new markets for the raw materials it produces.
This has led the company acquiring
numerous companies, including Lykes Meat Group, North
Side Foods, RMH Foods and
Farmland Foods,
the sixth-largest
U.S. pork processor. Each

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Meat + Poultry - September 2006

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