Smithfield shifts focus to hog production

 

 

Smithfield Foods said it is turning its attention to increasing profitability of its hog production.

 

During an earnings conference call Thursday, which dealt in part with the company's US$4.6 million loss for the fourth quarter, Smithfield executives said the company is embarking on a "hog cost improvement initiative."

 

According to chief executive Larry Pope, "This will change the structure of our live production operations and make us highly competitive on that end of the business (just) as I believe we have made big strides on the meat processing side."

 

Last year, Smithfield announced a plan to close six factories, including one in its Virginia hometown. It closed a seventh in Sioux City, Iowa, in April, which brought that restructuring effort to a close, Pope said.

 

Executives did not outline many specifics of the new initiative Thursday. But they used standardisation of genetics programs as an example of what likely will be involved.

 

Pope said the initiative will cost about US$90 million in capital expenditures plus about US$40 million or US$50 million in one-time charges. It is a multi-year strategy, he said, cautioning that they would not see a financial boost immediately.

 

"I can't change that life cycle (of an animal), and unfortunately, it may be four years before the full benefits of this will accrue to the bottom line," Pope said. "But it is the right thing to do to reposition this hog production side of the business, and we are extremely excited about what we believe we can get out of that."

 

Most Bladen County hog farmers work under contract with Smithfield subsidiary Murphy-Brown LLC, according to Becky Spearman, an agriculture agent with the Cooperative Extension.

 

Also, Smithfield announced it is changing the way it handles hedging, which it has used to protect itself from severe market fluctuations. Like other livestock producers, Smithfield has sold commodity futures to lock in prices long before the hogs are ready.

 

Some analysts have been critical of Smithfield's past hedging decisions, which has been reflected in the company's stock prices. Pope said that has been linked in part to a difficulty communicating to shareholders the company's hedging strategy.

 

For the quarter, Smithfield's US$4.6 million loss compared with an US$81 million loss in the same quarter last year. For the fiscal year, Smithfield lost US$101.4 million, compared with a loss of US$198.4 million the previous year.

 

Smithfield has offered to buy out Maxwell Farms Inc.'s 51% ownership share of Butterball LLC. Chief Financial Officer Robert "Bo" Manly said Maxwell will either sell or will buy Smithfield's 49% stake in the company. That decision must be made by September, he said.