Smithfield Foods, Inc. (NYSE: SFD) today announced record earnings for the fourth quarter of fiscal 2001 ended April 29 of $53.5 million, or $.99 per diluted share, compared to $28.5 million, or $.51 per diluted share a year ago.
Results in the quarter included unusual gains totaling $5.0 million, or $.09 per diluted share, including a gain on the sale of a plant in Canada of $3.4 million, or $.06 per diluted share, and a gain on sale of IBP, inc. stock of $1.6 million, or $.03 per diluted share. Excluding these unusual gains, the company reported net income of $48.5 million, or $.90 per diluted share.
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For the full fiscal year 2001, Smithfield Foods reported record earnings of $223.5 million, or $4.06 per diluted share, compared to $75.1 million, or $1.52 per diluted share last year. Fiscal 2001 earnings included unusual gains of $48.6 million, or $.88 per diluted share, including a net gain on the sale of IBP, inc. stock of $45.2 million, or $.82 per diluted share, and the gain on the sale of the plant of $3.4 million, or $.06 per diluted share. Excluding these unusual items, net income totaled $174.9 million, or $3.18 per diluted share.
Sales in the fourth quarter totaled $1.5 billion, up eight percent from $1.4 billion in the same period a year ago. For the full year, sales were $5.9 billion, compared to $5.2 billion last year, a 15 percent increase.
Fourth quarter results were largely driven by a surge in profitability in the Meat Processing Group (MPG), reflecting strong demand for fresh pork. MPG operating earnings more than doubled to $54.6 million from $22.1 million a year ago. Fresh pork tonnage rose four percent with overall sales tonnage increasing one percent. Overall margins widened as average unit selling prices for the company’s meat products increased six percent while average live hog prices were three percent higher. Processed meats volume remained about the same as a year ago while margins rose substantially as the company focused on improving product mix.
“We had a strong quarter in our Meat Processing Group in the face of rising hog prices,” said Joseph W. Luter, III, chairman, chief executive officer and president. “Our value-added strategies are transforming commodity fresh pork into products that differentiate our brands in the marketplace and command higher margins. On the processed meats side, we are nearing a favorable mix versus fresh meat products and now are concentrating on margin improvement,” he said.
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By GlobalDataFourth quarter Hog Production Group (HPG) operating profit rose 17 percent to $66.4 million from $56.9 million, reflecting a combination of higher production and an increase in live hog prices.
Vertical Integration Produces Strong Full-Year Results
For the full year, MPG operating profit grew 10 percent while HPG profits almost tripled, underscoring the success of Smithfield Foods’ vertical integration strategy. MPG operating profits were $135.2 million versus $122.9 million a year ago, while HPG recorded operating profits of $281.3 million, well above $99.6 million in the prior year. Mr. Luter noted that while profits at the HPG were substantially above the prior year, they were generated in a year of relatively modest hog prices which were lower than the average for the past ten years. HPG results in fiscal 2001 benefited from 12 months of Murphy Farms production compared to four months in fiscal 2000.
For the year, fresh pork margins were under significant pressure compared with the prior year as a result of a 16 percent increase in live hog prices which could not be fully passed on in the form of higher selling prices. A substantial gain in processed meats margins, however, more than offset the lower fresh pork margins.
Mr. Luter observed that the company’s success this year was particularly gratifying, given the lackluster performance of other fresh meat processors during the last year. “In a year of volatile fresh pork margins, the company’s vertical integration strategy produced earnings stability and growth,” he said.
“In our Meat Processing Group, the important milestones of the year included achieving improvements in processed meats margins and making significant progress in our value-added initiatives in fresh pork,” noted Mr. Luter. “After major volume gains in processed meats in recent years, 2001 was the year to focus on margins.”
In fresh pork, branded products now account for 38 percent of product available for branding, nearly triple the percentage of four years ago. During fiscal 2001 sales of Smithfield Lean Generation Pork, perhaps the company’s greatest point of difference, climbed 11 percent to 100 million pounds. The company’s case-ready fresh pork sales were three times greater than the prior year’s level, surpassing the 75 million pound mark. “We believe that branded and case-ready products will be a significant source of growth going forward as supermarkets increasingly move to purchase premium products and pre-packaged and pre-priced pork for the meat case,” Mr. Luter said.
The company’s Hog Production Group produced 70 percent more hogs than a year ago, largely the result of a full year of Murphy Farms production. The HPG, through the recently reorganized Murphy-Brown organization, continues to focus on lower raising costs and increased efficiencies through cost-savings strategies in feed production, transportation, logistics and synergistic coordination with the processing plants.
On the international front, Schneider posted robust earnings in the fourth quarter versus a weak performance a year ago and Animex of Poland trimmed its losses. International operations recorded a profit in both the fourth quarter and full year versus losses in the corresponding periods a year ago. Animex has recruited new management and is continuing production cost improvements as it targets a financial breakeven position in fiscal 2002.
“Looking forward to fiscal 2002, I am very optimistic,” said Mr. Luter. “Earnings for this past year have set strong comparisons for the coming year, particularly in the first half. However, I believe we are just beginning to reap the benefits of several strategies we began putting in place more than ten years ago. Given the success of these strategies, I am confident that fiscal 2002 will be another record year.”
Smithfield Foods has delivered a 28 percent average annual compounded rate of return to investors since 1975. In the last 15 years, the company’s share price has outperformed the S&P 500 Index by more than 350 percent. With annual sales of $6 billion, Smithfield Foods is the leading processor and marketer of fresh pork and processed meats in the United States, as well as the largest producer of hogs. For more information, please visit http://www.smithfieldfoods.com.
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. These risks and uncertainties include availability and prices of live hogs, raw materials and supplies, live hog production costs, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards, adverse results from ongoing litigation 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, except April 29, April 30, April 29, April 30,
per share data) 2001 2000 2001 2000
Sales $1,510,310 $1,400,759 $5,899,927 $5,150,469
Cost of sales 1,255,096 1,203,012 4,951,024 4,456,403
Gross profit 255,214 197,747 948,903 694,066
Selling, general and
administrative expenses 114,243 100,113 450,965 390,634
Depreciation expense 32,512 30,789 124,836 109,893
Interest expense 17,922 20,281 88,974 71,944
Minority interests 4,438 (1,199) 5,829 1,608
Gain on sale of IBP common
stock (2,539) – (79,019) –
Income before income taxes 88,638 47,763 357,318 119,987
Income taxes 35,119 19,283 133,805 44,875
Net income $53,519 $28,480 $223,513 $75,112
Net income per common share:
Basic $1.01 $.52 $4.13 $1.54
Diluted $.99 $.51 $4.06 $1.52
Average common shares
outstanding:
Basic 53,148 54,862 54,180 48,642
Diluted 54,064 55,312 55,073 49,386
