Smithfield Foods, Inc. today reported net income of $75.1 million for the fiscal year ending April 30, 2000, compared with net income of $94.9 million in fiscal 1999. Fully diluted earnings per share were $1.52 in fiscal 2000 compared to $2.32 in fiscal 1999.
Sales for the year were a record $5.2 billion, an increase of 36% over 1999. The increase in sales was principally due to an increase in sales tonnage of 15%, mainly from international acquisitions made over the past two years, and average unit selling prices in the Meat Processing Group (MPG) that were 14% higher than in fiscal 1999. The sales increase was also helped, in part, by the acquisitions made in the Company’s Hog Production Group (HPG) in fiscal 2000 as a portion of these hogs are sold to third parties rather than to the Company’s MPG.
Total sales tonnage was also a record high six billion pounds principally due to the international acquisitions the Company has made over the past two years. In the base business, processed meats volume increased 6% although overall volume was down slightly. The domestic operating companies, reacting to significantly higher hog prices and substantially lower fresh pork margins, reduced their slaughter levels below the record levels achieved in fiscal 1999.
Net income in the fourth quarter of fiscal 2000 was $28.5 million, or $.51 per diluted share, compared with net income of $26.7 million, or $.63 per diluted share, in the same period a year ago. The increase in net income reported for the fourth quarter was the result of a significant favorable swing in operating profit in the HPG offset by lower margins on both fresh pork and processed meats. Live hog prices were 47% higher in the current quarter than in the same quarter last year. While net income for the fourth quarter of fiscal 2000 exceeded the prior year, the higher number of average common shares outstanding as the result of acquisitions made in the current year resulted in lower earnings per share.
Sales for the fourth quarter of fiscal 2000 were $1.4 billion, a 40% increase over the same period last year. The increase in sales included a 24% increase in unit selling prices in the MPG together with a 6% increase in sales tonnage and a contribution from third party sales by the HPG. Product mix was also favorable as processed meats tonnage was up 19% while fresh pork tonnage increased only 2%. Within the base business, processed meats volume increased 2% while fresh pork volume was down 4%.
MPG operating profit for the full year was $122.9 million compared to $253.8 million in fiscal 1999. In the quarter, MPG operating profit of $22.2 million compared to $65.6 million in the prior year. The decline in operating profit for the quarter and the year reflects the impact of significantly higher hog prices on margins as noted previously.
Higher hog prices had the opposite impact on profitability in the HPG which reported an operating profit of $99.6 million compared to a loss of $46.1 million in fiscal 1999 and $56.8 million for the quarter compared to a $9.4 million loss in the fourth quarter last year.
“We believe that the fourth quarter once again demonstrates the wisdom of our strategy of vertical integration”, said Joseph W. Luter, III, chairman and chief executive officer. “While we are disappointed that fiscal 2000 was not our fourth consecutive year of record profits, it was still the Company’s second best year; second only to fiscal 1999 which benefited from historically low hog prices and unusually high fresh pork margins. Given the sharp increase in hog prices during the year, our timing of acquisitions of hog production assets could not have been better. We are extremely pleased with the contributions from these acquisitions in fiscal 2000 and, given current hog prices, we expect that the first quarter of fiscal 2001 will be substantially better than the first quarter of the previous year.”
Luter said highlights of fiscal 2000 included:
- Becoming the world’s largest hog producer with the acquisition of Carroll‘s Foods.
- Solidifying that position with the acquisition of Murphy Family Farms.
- Doubling the Company’s private-label processed meats business in France with the acquisition of Societe Financiere de Gestion et de Participation S.A. (SFGP).
- Increasing the Company’s ownership in Animex S.A. to 85%.
- Listing Smithfield on the New York Stock Exchange giving the Company’s shares more visibility.
- Expanding the Company’s international presence by the formation of a joint venture in Mexico, Agroindustrial del Noroeste, involving both hog production and fresh and processed meats operations.
- Create an environmental committee to monitor compliance with all applicable environmental laws and regulations and to direct the activities of Smithfield Technologies, Inc. which will attempt to develop alternative waste treatment systems to the anaerobic lagoons currently widely used and permitted in hog production.
- Reorganizing the Board of Directors including the appointment of a majority of outside Directors.
- Instituting a share repurchase program to further increase shareholder value.
- Expanding the Company’s genetic development program and commitment to the NPD hog, the foundation of the Smithfield Lean Generation Pork(TM) Program, by restructuring NPD (USA) as a separate company within the organization.
- Forming, with other leaders in the protein industry, an e-commerce company that will be the world’s leading business-to-business marketplace for meat and poultry.
- Announcing the intention to acquire additional processing capacity in the Midwest to support the Company’s rapidly growing case-ready program.
DESCRIPTION OF COMPANY
Smithfield Foods is the largest vertically integrated producer and marketer of fresh pork and processed meats in the United States. The Company’s brands include Smithfield Lean Generation, Smithfield Premium, Gwaltney, John Morrell, Patrick Cudahy, Schneiders, Krakus, Lykes, Esskay, Kretschmar, Valleydale, Jamestown, Dinner Bell, Sunnyland, ReaLean, Patrick’s Pride, Great, Tobin’s First Prize, Peyton’s, Rodeo, IQM, Curly’s, Ember Farms and others.
In addition, the Company has operating subsidiaries in Canada, France and Poland and participates in joint ventures in Canada, Brazil and Mexico. The French subsidiaries produce and sell processed meats while the Canadian and Polish subsidiaries have slaughter operations and sell fresh pork, processed meats and other related food products. The joint ventures are involved in all aspects of the pork business including hog production and slaughter as well as the sale of fresh and processed meats.
FORWARD LOOKING INFORMATION
This news release may contain “forward-looking” information within the meaning of the federal securities laws. The forward-looking information may include statements concerning the Company’s outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. The forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the statements. The risks and uncertainties include availability and prices of live hogs and raw materials, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital and actions of domestic and foreign governments.
CONSOLIDATED STATEMENTS OF INCOME
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
(In thousands, April 30, May 2, April 30, May 2,
except per share data) 2000 1999 2000 1999
Sales $1,400,759 $999,060 $5,150,469 $3,774,989
Cost of sales 1,203,012 847,999 4,456,403 3,235,414
Gross profit 197,747 151,061 694,066 539,575
expenses 100,113 82,859 390,634 295,610
Depreciation expense 30,789 18,830 109,893 63,524
Interest expense 20,281 9,346 71,944 40,521
Minority interest (1,199) 178 1,608 (3,518)
income taxes 47,763 39,848 119,987 143,438
Income taxes 19,283 13,100 44,875 48,554
Net income $28,480 $26,748 $75,112 $94,884
Net income per
Basic $.52 $.64 $1.54 $2.39
Diluted $.51 $.63 $1.52 $2.32
Average common shares
Basic 54,862 41,845 48,642 39,628
Diluted 55,312 42,691 49,386 40,962