Smithfield narrows loss, offers $200M for Butterball
June 17, 2010
SMITHFIELD, VA. — With the price of feed relatively low and demand improving, Smithfield Foods, Inc. was able to narrow its loss during the fourth quarter and full-year 2010. The company has also made a $200 million offer to purchase the remaining interest in Butterball L.L.C., a joint venture Smithfield formed with Maxwell Farms' with the acquisition of the turkey brand from ConAgra Foods in 2008. An operating agreement of the j.v., operating as Carolina Turkey, would require Smithfield's offer to be accepted or have its 49% interest purchased by the other party.
For the year ended May 2, the company sustained a loss of $101.4 million, an improvement from a loss of $198.4 million during the previous year. Sales for the year were $11,202.6 million, down 10% from $12,487.7 million during the previous year.
“The last two years were by far the most challenging in over 30 years,” said C. Larry Pope, president and chief executive officer. “The contributing factors — global recessionary conditions, unfounded fear about (H1N1) and the resultant closures of some key export markets, spiking grain prices and extended low hog prices tied to a significant oversupply of live hogs — are all well documented. These factors, combined with the extremely slow pace of herd liquidation in spite of mounting industry losses, all conspired to make for one of the longest and deepest downturns ever in live hog production.
“Finally the hog production cycle has turned. Live production losses, particularly on the cash side, have abated. Although our fourth-quarter Hog Production segment results do not yet reflect the full benefits of the recently improved live hog production environment, the recovery in the cash and futures markets for hogs is encouraging and has allowed for significant year over year improvements in that business.”
For the year the Pork segment had operating income of $538.7 million, down 36% from $395.2 million during the previous year. Sales for the segment were $9,326.3 million, down 11% from $10,450.9 million during the previous year.
The Hog Production segment had operating loss of $460.8 million, which compared with a loss of $521.2 million during the previous year. Sales for the segment were $2,541.8 million, down 8% from $2,750.9 million during the previous year.
For the fourth quarter ended May 2, the company had a loss of $4.6 million, which compared with a loss of $81.2 million during the same quarter of the previous year. Sales for the quarter were $2,910.2 million, up 2% from $2,850.6 million during the same quarter of the previous year.
Mr. Pope said the Butterball offer will allow the company to either develop its turkey business the way Smithfield would like, or allow the company to focus on its core operations.
"Purchasing the remaining ownership interest in Butterball will afford Smithfield the opportunity to build the Butterball brand unconstrained by the restrictive terms of our current investment agreement and disagreements with our partner in respect to the development of the business," Mr. Pope said. "On the other hand, if we are the seller, we will have exited the turkey business at a price that we believe fairly values the operations. Either way, we will be pleased with the outcome."