Smithfield Foods, USA: Weathering the ‘storm’: CEO says

Smithfield Foods President and CEO C. Larry Pope jested to those attending his presentation Tuesday at the Consumer Analyst Group New York conference that the barbecued ribs his company provided for the night's dinner were "close-dated" and therefore should be eaten quickly.

Such are the breaks in a bad economy, he said.

Making the best of a bad situation, Pope told investors, is what Smithfield historically has done and will continue to do during the current economic recession. He ventured that his company is set up to benefit from current market conditions, including declining oil, corn and soybean prices in the coming year. That 75 percent of the company's business is retail at a time when foodservice is declining, and that diners are trading down to quick-service restaurants, also bodes well for Smithfield, he said.

"We have gone through the storm, and we believe we're coming out on the other side," Pope said.

Among the changes that Smithfield has made to better position itself in the current climate, he said, were a 10 percent reduction in its sow herd over the last year; the sale of its beef business to Brazilian giant JBS S.A.; the establishment of new debt covenants and most recently the restructuring of its already successful processed pork business.

Restructuring

The latter of which, he also had told Meatingplace earlier in the day, was reflective of Smithfield's transition from a buyer of underperforming companies to a manager of existing assets. The pork group restructuring plan closes six plants in the next year, transfers operations to better-run plants and reduces to three from seven the number of independent operating companies.

The goal, Pope said, is to run its pork processing plants at 90 percent of capacity, which would provide a low-cost platform and flexibility to meet customer needs in peak periods. "Even if the recession goes deeper," he said, "this puts us in a much stronger competitive position to deal with that."

Smithfield executives project that the restructuring plan will add 2.5 cents per pound in margins, to between 11 and 12 cents per pound, surpassing Pope's long-standing goal of 10 cents.

The restructuring, Pope said, also "allows us to be more disciplined from a sales standpoint. We are walking away from cheap business. I'd rather be a smaller, more profitable company than a larger, less profitable company."