When Smithfield Foods waddles up to the trough, the other porkers stand back. Big from acquisitions, the company is the world's largest hog producer and pork processor. Its products include more than 50 brands of fresh pork and processed, value-added pork products. Smithfield Foods sells its products under such brand names as Armour, Eckrich, Cook's, Farmland, John Morrell, Patrick Cudahy, Gwaltney, and Healthy Ones. In addition to meat products, the company's specialty foods division offers nuts, desserts, and dressings. Smithfield distributes its meats in the US and abroad, mainly in Mexico, Western Europe, the UK, Poland, and Romania. Smithfield has agreed to be acquired by China's Shuanghui International.
Change in Company Type
In the largest takeover to date of a US company by a Chinese firm, Smithfield and Shuanghui plan to combine their operations in a deal valued at approximately $7.1 billion, including the assumption of Smithfield's debt. Shuanghui International is the majority shareholder of Henan Shuanghui Investment & Development Co., which is China's biggest pork producer. The proposed deal has raised concerns over food safety and security. Smithfield expects the deal to increase exports of its pork products to China.
Smithfield had identified 12 major brand names on which it plans to focus its attention. It intends to improve its annual profitability by about $90 million by fiscal 2014 and anticipates its packaged meats business, which accounted for 56% of 2011 sales, will maintain its solid profitability. Though in past years Smithfield was getting fat on acquisitions, recently the pork provider has been concentrating on shedding excess weight. The company restructured its pork segment by consolidating numerous independent operating companies into three regional ones and shuttered half a dozen packaged meats plants and one fresh pork plant that had been deemed inefficient and underutilized. This effort also included consolidating its sales organization. To stay competitive, the company had previously streamlined its operations in 2009. This effort included selling Maverick Food Co. (a Chinese meat joint venture with Belgium's Artal Group) to China's largest grain trader COFCO for some ¥194 million ($23 million). Smithfield also restructured its pork segment, which included making Patrick Cudahy and Carando Foods part of the John Morrell group, making North Side Foods part of Farmland Foods, and moving Cumberland Gap Provision to the Smithfield Packing Company operations. The company also closed half a dozen plants (in Florida, Kansas, Nebraska, North Carolina, Ohio, and Virginia) and moved their operations to other facilities. Some 1,800 jobs were eliminated.
Smithfield Foods reported $13 billion in sales in fiscal 2012 (ended April), a 7% increase versus the prior year. Net income declined by nearly 31% over the same period.
Mergers, Acquisitions, and Divestments
With an eye toward taking control of Europe's Campofrío Food Group to build a stronger packaged meat business worldwide, the company began chasing down a majority stake in the company in early 2011 at the tune of €500 million (about $715 million). By midyear, however, Smithfield terminated negotiations, citing Europe's difficult economic condition, Smithfield's declining stock price, and the high price of corn. Smithfield already owns 37% of the packaged meat company and aimed to increase its stake to nearly 90%.
Looking to get back in the black following the economic downturn, Smithfield sold its 49% holding in turkey producer Butterball to majority owner Maxwell Farms for $175 million in 2010. Maxwell Farms subsequently sold a 50% stake in the venture to agribusiness giant Seaboard Corporation for $177 million. (The deal followed an earlier attempt by Smithfield to buy out Maxwell Farms' stake for $200 million.) Smithfield has been using the proceeds from the deal to pay down debt.
Smithfield has tried to boost sales by placing more emphasis on the production of higher-margin precooked meats and entrees. However, the company is still in a commodity business, and low hog prices can affect earnings. Frustrated investors, looking for ways to better predict the ebbs and flows of Smithfield's sales, urged the pork producer in mid-2010 to rely less on derivative bets it has made on the futures market.
Beef was, at one time, an important part of Smithfield's diet. The company was once one of the largest beef processors in the US. However, in 2008 it sold its beef operations, Smithfield Beef Group (now JBS Packerland), and its feedlot joint venture Five Rivers Ranch Cattle Feeding to Brazilian meat giant JBS. Smithfield used the proceeds ($565 million in cash) from the sale to pay down debt. To sell the feedlot joint venture, Smithfield bought out the 50% interest that was owned by ContiGroup for some 2 million shares of its stock.