August 18, 2020

Smithfield Foods' adjusted operating results swing to loss in second quarter

Smithfield Foods, Inc. announced this month that it has spent $350 million to protect its team members and the US food supply during the COVID-19 pandemic, causing adjusted operating results to swing to a loss in the second quarter of 2020.

At Smithfield, the first half of 2020 was "a tale of two tapes": pre-pandemic and pandemic. Prior to the onset of COVID-19 in the United States, Smithfield delivered record results in the first quarter of 2020, which were 190% higher than 2019.

However, the impact of the pandemic weighed heavily on the company's second quarter, pushing adjusted operating results 140% below a year ago to a US$72 million loss. Even when factoring in a benefit from risk management activities entered into before the pandemic, second quarter results were positive, but remained 54%, or $119 million, below a year ago.

Smithfield incurred both direct and indirect incremental expenses related to COVID-19 totaling US$350 million during the second quarter. This included US$195 million in people-related costs, US$125 million in facility-related costs and US$30 million in community-related costs, detailed as following:

- Fully compensating over 22,000 employees to stay home at various points during the pandemic;

- Expanding employee benefits and removing all barriers in health plans;

- Adding "Responsibility" pay premiums;

- Hiring private healthcare providers to supply free, on-site, on-demand COVID-19 testing to all employees;

- Adding personal protective equipment (PPE) and abundant hand sanitising stations, installing mass thermal scanning systems and physical barriers, among other protective measures;

- Adopting a series of stringent and detailed processes, protocols and protective measures that follow, and many cases exceed, CDC and OSHA guidance for Meat and Poultry Processing Workers and Employers and CDC and DOL guidance for Agriculture Workers and Employers;

- Slowing lines and decreased efficiency, incurring downtime, changing production to meet shifting demand and downgrading and rendering product;

- Donating 40 million servings of protein to food banks nationwide.

On August 11, the League of United Latin American Citizens (LULAC) issued a statement praising Smithfield's COVID-19 protective measures, which they witnessed firsthand during a facility visit last month. The company commended LULAC for being one of the very few organisations to commit time and resources to visiting its operations amid the pandemic.

"Going forward, we expect performance to rebound in the fall, as our COVID-19 related costs, some of which were one-time or short-term in nature, are declining," said Kenneth M. Sullivan, president and chief executive officer of Smithfield, in regards to the back half of 2020, particularly the fourth quarter,

Commenting on the company's ongoing approach to COVID-19, he said: "Throughout the pandemic, we have had two priorities, and two priorities only. First, keep our people healthy and safe. And, second, keep our nation fed. These remain our sole priorities. We thank our Smithfield Family for working tirelessly to keep food on America's tables."

- Smithfield