A string of acquisitions, most recently of Packerland Holdings last week, has left Smithfield Foods a clear leader in the US meat market. While the group has its critics – not least environmentalists and animal rights activists – its future in both pork and beef looks bright. Pamela Ahlberg takes up the story.
This is not a bad time to be a pork producer, what with consumers a little iffy on beef and maybe weary of those boneless, skinless chicken breasts. And this is an especially good time to be the largest US pork processor, Smithfield Foods, Inc.. A quick glance at Smithfield’s stock chart would warm any investor’s heart – a strong, steady climb for the last year or so, increasing acquisitions since June, and a bold and clearly articulated plan for the future.
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Company chairman Joseph Luter told shareholders at the company’s recent annual meeting that the company plans to build two or three major meat processing plants over the next several years. He also said that Smithfield would move from being a provider of bulk pork, typically sold in higher volumes but at lower profit margins, to a higher-margin “case-ready” product line. Case-ready is more profitable than bulk meats since the processor can charge for the preparation. Smithfield sold more than 75 million pounds of case-ready pork last fiscal year, three times as much as the previous year.
Luter said that Smithfield is also committed to elevating the company’s profile, brand awareness and customer loyalty to increase sales. In June, the company hired Hormel Foods Corp. executive Robert Slavik to run its marketing efforts and will launch a US$20m to US$40m marketing push early next spring to push its branded pork.
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By GlobalDataSmithfield is currently the largest hog producer in the world, accounting for about 12% of the US market. It is more than triple the size of its nearest competitor.
In the 1980s, the company began raising its own animals. By both raising hogs and slaughtering them, Smithfield is able to partially insulate itself from rising and falling hog prices, giving it an advantage over other meatpackers.
Where’s the beef?
In addition, Smithfield continues to make inroads into the beef market. Just over a week ago, the company announced that it would acquire the fifth-largest US beef processor, Packerland Holdings Inc. (Green Bay, WI). This is Smithfield’s biggest acquisition thus far and boosts the company to about a 7% share of the US beef market.
The announcement came just a few months after Smithfield purchased Moyer Packing Co. (Souderton, PA), the industry’s ninth-largest beef producer. Combined, Packerland and Moyer will add a new beef processing division to Smithfield, with more than US$2bn in annual sales.
At the annual meeting, Luter said the company also plans to buy at least one cattle-raising operation and build another to supply its beef business.
That Smithfield was looking to expand into beef was clear in January when the company tried and failed to acquire beef processor IBP Inc. (Dakota Dunes, SD). Had that deal gone through, Smithfield would have become the nation’s largest beef processor. Also, the company said that a few months ago it had been in talks with ConAgra Foods to buy its meat operations, but that those discussions had ended.
The latest in a string of acquisitions
Between the Moyer and Packerland acquisitions were others, including the purchase of one-half interest in Pinnacle Foods, Inc., which produces case-ready pork, beef, lamb and veal, as well as bankrupt Texas meat company, Gorges/Quik-to-Fix Foods Inc., maker of pre-cooked beef, pork and poultry for retail and food service.
In late July, the company completed an US$18m acquisition of ham and specialty foods producer the Smithfield Companies. Inc. (Portsmouth, VA), which the company expects will provide new marketing resources and outlets and additional plant capacity for pre-cooked meat products and sauces.
Environmental obstacles
But while pleasing shareholders, Smithfield Foods has also become the target of environmental activists and animal-rights groups, who argue that the company’s factory-style production facilities pollute air and waterways and are cruel to animals.
In February, a coalition of environmental groups led by Robert Kennedy Jr. filed lawsuits claiming that Smithfield Foods had broken criminal and civil laws by wilfully ignoring environmental regulations.
In addition to environmental complaints, some Midwestern states have made efforts to create and enforce anti-corporate-farming laws, which would prevent meatpackers like Smithfield from owning its own livestock.
But CEO Luter ignores such obstacles and brushes off most criticism, arguing that resistance to hog farms is the luxury of a thriving economy. He believes that in the current economic slowdown, the jobs and investment brought by his hog operations will outweigh the complaints and begin to look more appealing.
At the company’s recent annual meeting, he said, “This is a very dynamic time in this industry. There are lots of opportunities out there.”
While statements and predictions like these will be carefully reconsidered in light of the tragic events last Tuesday in the US, he may well be right.
By Pam Ahlberg
Pam can be reached by email at: pahlberg@bellatlantic.net
To view related research reports, please follow the links below:- The 2000-2005 World Outlook for Meat The 2000-2005 World Outlook for Pork |
