Special report from the CAGNY: Smithfield's strategy

by Editorial Staff
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BOCA RATON, FLA. – While addressing attendees at the Consumer Analyst Group of New York Conference in Boca Raton, Fla., C. Larry Pope, president and chief executive officer of Smithfield Foods Inc., said the recently announced pork group restructuring plan is part of a plan that has been under way since last year.

"We are not doing this [restructuring] as a result of any pressure from any of our banks. We started this process last February..... [this will help] generate higher margins in the packaged-meats business" Mr. Pope explained.

Smithfield has traditionally grown through acquisitions, which involved easy turnarounds by changing some of the operating procedures and moving acquired businesses up to a reasonable level, he said. Smithfield, however, did not do much corporate restructuring. As a result, it had many independent operating companies with a lot of overhead. "We have been aware of that; [the restructuring] has been part of our strategy," he said. "....We [knew we needed] to change some of the structure to improve the results.

It has taken Smithfield this long to put the pork-restructuring plan together because it's a very complex process, he continued. "It's part of a continuing program, and we believe that you will begin to see the big benefits of that, as you have been seeing as our pork group profits have continued to rise," he said.

Mr. Pope said Smithfield’s business is doing very well in the meat processing group. "In fact, we're producing record results, and [the meat processing group] will have a record year this year."

Smithfield estimates the restructuring will yield an annual improvement to its packaged meats business of about $80 million. The company has been getting about $0.09 a pound margin for its packaged meats over the last two years, Bo Manly, executive vice president and chief financial officer, told attendees. "Larry wants $0.10," he added. "The restructuring plan will add approximately $0.025 per pound to our packaged meats sales margins. And this will get us to somewhere between $0.11 and $0.12 in total margin attainment. So we will reach Larry's goal of $0.10."

Mr. Pope said customers are rapidly changing their buying habits. The company is seeing a consumer trade-down from brands down to value brands and then to private-label brands. "Smithfield sells to the value-conscious consumer," he added. "We are the product that is often-times on feature. Our largest competitor is generally the house brand. And many times we're the manufacturer of the private-label product as well."

Looking forward, Mr. Pope said, "We believe our next year should be better than the current year, in spite of the current recession that is out there."

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