Meat + Poultry - August 2005 - 26

Smithﬁeld stays high on the hog
Smithﬁeld Foods, Smithﬁeld, Va.,
continues to reap ﬁnancial beneﬁts from
its vertically integrated pork strategy.
The world's largest pork and hog producer had record fourth quarter operating proﬁts and record net income for
ﬁscal 2005. That was despite a sharp
decline in pork processing proﬁts and
continued beef losses ($8.9 million for
the year compared
to an $83 million
proﬁt in 2004).
Hog production
accounted for more than 82 percent
of both quarterly and annual operating
proﬁts. This reﬂects the remarkable
proﬁts made by U.S. hog producers in
the past year. Smithﬁeld raises 15 million hogs per year, so it appears to have
made about $32 per hog in operating
income in 2005.

Both Smithﬁeld and ﬁnancial analysts
look for the company to deliver an even
stronger performance in ﬁscal 2006,
which began May 2. Smithﬁeld chairman Joe Luter is particularly bullish on
the ﬁrm's growth in Europe.
The company is also likely in the
coming year to substantially grow its
U.S. beef business. It is currently the
ﬁfth-largest beef
processor and the
largest cattle feeder
through Five Rivers Ranch Cattle Feeding L.L.C. This
joint venture between Smithﬁeld and
ContiBeef L.L.C. formally began operations in May. In October, Smithﬁeld
paid $57 million for ConAgra Foods'
cattle feeding business. The company
now has 811,000 of one-time feeding
capacity under its control.

Knowing no boundaries
Tyson Foods, Inc., Springdale, Ark.,
already the world's largest meat and
poultry company, is looking
outside the United States
for growth during the
next decade. Company
executives are considering investments in Mexico, Brazil, China and Europe,
says John Tyson, chairman and C.E.O.
It is looking outside the United States
because that's where 97 percent of the
world's population now lives, he says.
Tyson also expects to grow internally
by 2 to 3 percent per year. With $26.4
billion in sales during ﬁscal 2004, Tyson is No. 1 in market share in beef (27
percent) and chicken (26 percent) and
No. 2 in pork (18 percent). Its ﬁve-year
strategy has three prongs: increasing
value-added products, operational efﬁciencies and international growth.
The company has initiated an aggressive effort to increase its percentage of value-added product sales from
36 percent in ﬁscal 2004 to 40 percent
in 2005 to 50 percent by 2009. It introduced more than 200 new value-added
products this past year, and its R&D
team worked on more than 400 new

beef and pork products in the ﬁrst half
of ﬁscal 2005, says Tyson.
It introduced 120 beef and
pork products and 83
chicken products in that
period. Its case-ready
beef and pork business
increased 20 percent in
ﬁscal 2004 to reach $1.4
billion in sales. Tyson expects
double-digit growth this year. Caseready production capacity will grow by
one-third when the new plant in Sherman, Texas becomes fully operational
early next year.
Tyson Foods has continued focusing on operational efﬁciencies and has
closed underperforming plants. For
example, in January it shut down its
Nature's Farm organic chicken business
because of poor economics. Tyson says
it costs 2.5 times more to produce an organic chicken than a conventional one.
The company has reduced debt to
$1.6 billion and expects to have a 40
percent debt-to-capital ratio by the end
of ﬁscal 2005, which will be at the end
of next month.
International sales during ﬁscal
2004 were $2.9 billion. Sixty-ﬁve

Smithﬁeld may make a play for
Swift & Co. Executives have openly
said they want to buy the company,
mainly for its beef business. In the
meantime, Smithﬁeld is exploring the
possibility of building a beef processing plant on the southern Great Plains.
Smithﬁeld is in good ﬁnancial shape to
make a large acquisition. It reported
net income of $196.2 million or $2.64
per share for ﬁscal 2005, with sales of
$11.354 billion.
Meanwhile, Smithﬁeld's Packerland
Packing Co., unit closed its Gering,
Neb., cow plant after operating it since
the early 1980s. The plant has not been
proﬁtable for some time, and Packerland
based its decision more on it remaining
unproﬁtable for the foreseeable future.

percent of the exported products were
U.S. produced, while 35 percent were
produced outside the United States.
The company is looking at establishing
further relationships in beef and pork
processing in Mexico, says Tyson.
Tyson Foods' chicken business
remains its ﬁnancial strength. It had
operating income of $247 million in
the ﬁrst six months of ﬁscal 2005.
Conversely, beef had a loss of $35 million. Pork had operating income of $34
million, and prepared foods earned $32
million.
The company predicts beef operations to be proﬁtable in the second half
of 2005 because of a seasonal increase
in demand and larger live cattle supplies, according to Tyson. Its earnings
guidance at the end of June was for it
to earn between $1.05 and $1.20 per
share in ﬁscal 2005.
Steve Kay is editor and publisher of
Cattle Buyers Weekly, Petaluma, Calif.
(www.cattlebuyersweekly.com).
We would like to hear from you- your comments
and questions about this article are welcome.
E-mail the author at: meat&poultry@sosland.com

www.MEATPOULTRY.com

August 2005

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Meat + Poultry - August 2005

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