Smithfield overhauls processing focus to packaged meats

13-Sep-2009 - Last updated on 14-Sep-2009 at 12:34 GMT

Related tags Pork

Smithfields has declared it is transforming itself into a packaged meat company in a bid to benefit from the sector’s higher profit margins and more stable nature.

“We are on the cusp of changing who this company is,” said Smithfield CEO C Larry Pope at the Barclays Back to School Consumer Conference at the end of last week.

He added: “We are emerging as a global leader in the packaged meats business.”

The company is already market leader in packaged meats in many European countries; either as a stand alone operation as in Poland and Romania, or through its 37 per cent stake in CampoFrio, market leader in France, Spain, Belgium, Portugal and the Netherlands.

Opportunity

Pope said the company saw a huge “opportunity” in packaged meats, explaining the margin growth in the first quarter of the financial had doubled compared to 2007/08 from $0.08 per pound to $0.16.

The firm will remain a huge processor of pork meat but will seek to maximise returns itself from its processed products by boosting its downstream packaged meat division rather than selling the raw material to a rival to do the same, said Pope.

He said the Smithfield would not be exiting hog production but called its operations the company’s “Achilles Heel” as he confirmed herd size had been slashed by 13 per cent in the last financial year.

Restructuring plan

The Smithfield announcement is a significant one given the scope and volume of the company’s operations both in the United States and Europe. In the last financial year, the firm processed 33 million hogs, sold around 4.5bn pounds (2.04bn kg) of pigmeat worth $10.5bn. In the same period, its packaged meat segment sold just over 3bn pounds of produce. In its Q2 results released last week, Smithfield saw its year-on-year packaged meat profits triple to a record $107m for the 13-week period. However, these were insufficient to prevent the company posting a loss in excess of $100m.

Pope said the company’s cost-cutting and plant closure plan was almost complete and that this would pave the way for the transformation of Smithfield.

“Our restructuring plan has not yet hit the bottom line but it is ready,” he said; “We are looking more like a consumer packaged goods company than an agribusiness.”

He forecast the restructuring would see Earnings Before Tax (EBT) for packaged meat increase by USD80m per year by 2011.