Smithfield Foods Reports Second Quarter Results

Smithfield Foods Reports Second Quarter Results

SMITHFIELD, Va., Dec. 6, 2012 (GLOBE NEWSWIRE) -- Smithfield Foods, Inc.
(NYSE:SFD) today reported fiscal 2013 second quarter results. All comparisons
are to the second quarter of fiscal 2012.

Highlights

  *Net income was $10.9 million, or $.07 per diluted share, after $120.7
    million early debt extinguishment charge
  *Adjusted EPS was $.61 per diluted share
  *Packaged meats operating profit +33% to $100 million

    *Packaged meats volume +2%

  *Fresh pork earnings rebounded sharply from first quarter with strong 8%
    operating margin
  *International operating profit +136%
  *Repurchased more than 17% of the company since July 2011

    *Repurchased 3.4 million shares for $67 million in second quarter
    *Repurchased 8.2 million shares for $174 million subsequent to quarter
      end

  *Reduced interest expense 6%

Following are the company's sales, operating profit and margin by segment
(dollars in millions):

              Three Months Ended              Six Months Ended
              October 28,      October 30,    October 28,      October 30,
               2012             2011           2012             2011
Sales:                                                              
Pork                                                                
Fresh Pork     $1,237.3      $1,292.4    $2,498.3      $2,546.6 
Packaged Meats 1,483.6        1,482.4      2,822.2        2,825.5   
Total Pork    2,720.9        2,774.8      5,320.5        5,372.1   
Hog            734.0          785.3        1,462.8        1,535.1   
Production
International 358.6          391.1        705.4          766.1     
Total segment  3,813.5        3,951.2      7,488.7        7,673.3   
sales
Intersegment  (587.7)        (638.6)      (1,171.6)      (1,266.5) 
Consolidated   $3,225.8      $3,312.6    $6,317.1      $6,406.8 
                                                                   
Operating
profit and                                                          
margin %:
Pork                                                                
Fresh Pork     $94.7    8%   $96.2    7% $82.7    3%   $131.6   5%
Packaged Meats 99.6      7%   75.0      5% 230.2     8%   176.3     6%
Total Pork    194.3     7%   171.2     6% 312.9     6%   307.9     6%
Hog            (32.6)    (4)% 63.9      8% (9.5)     (1)% 133.6     9%
Production
International 40.9      11%  17.3      4% 56.7      8%   17.3      2%
Corporate     (24.3)         (27.7)       (50.0)         (60.9)    
Consolidated   $178.3   6%   $224.7   7% $310.1   5%   $397.9   6%
                                                                   

Sales for the second quarter of fiscal 2013 were $3.2 billion, down 3%, as
higher volumes in all segments were more than offset by lower meat and live
hog prices. Net income was $10.9 million ($.07 per diluted share) compared to
net income of $120.7 million ($.74 per diluted share) last year.

In the second quarter, the company completed the following actions to
refinance its balance sheet, thereby lowering borrowing rates, dramatically
improving its debt maturity profile and eliminating all long term secured debt
obligations:

  *Issued $1 billion 6.625% senior unsecured notes due 2022, which yielded
    net proceeds of $981 million.
  *Repurchased $105 million of the $160 million outstanding balance of 2013
    senior unsecured notes (7.75% coupon).
  *Repurchased the entire $589 million outstanding balance of 2014 senior
    secured notes (10% coupon).
  *Secured a two year extension for $200 million bank term loan from fiscal
    2017 to fiscal 2019.

In connection with these transactions, the company recorded a pre-tax early
debt extinguishment charge of $120.7 million, or $.54 per diluted share, in
the second quarter of fiscal 2013. Excluding this charge, adjusted EPS was
$.61 on a non-GAAP basis. Last year, EPS of $.74 included a $.02 per diluted
share charge for the early extinguishment of debt, resulting in non-GAAP EPS
of $.76.

Commentary

"Our solid second quarter performance reflects the results of our ongoing
efforts to deliver higher quality and more consistent earnings to our
shareholders led by growth in our packaged meats business, even when faced
with challenging commodity markets," said C. Larry Pope, president and chief
executive officer.

"In addition to higher packaged meats margins, volumes improved on a year over
year basis for the third consecutive quarter, growing by 2%. Volume and sales
grew across all key trade channels, more than offsetting double-digit declines
in our industrial business. Strong retail channel performance – which
accounted for more than half of packaged meats volume in the quarter – was led
by growth in our Armour, Farmland, John Morrell and Kretschmar brands. New
business with a number of national accounts continued to support growth and
provide momentum in the foodservice channel. Gains in deli were fueled by our
Eckrich brand with the introduction of Eckrich Bacon Lovers Deli Meats late
last fiscal year, as well as our Kretschmar brand," he commented.

Mr. Pope continued, "Our growth in packaged meats was broad-based, driven by a
combination of brand activation, new product launches, market share
improvements and distribution gains. In addition to our ongoing NASCAR
sponsorship, we recently launched cause-marketing campaigns with several of
our core brands, creating heightened brand awareness through millions of media
impressions with consumers. We introduced a number of new products to the
marketplace under our health and wellness, convenience and taste platforms
with our Armour, Eckrich, John Morrell and Smithfield brands. We also gained
national distribution with our Farmland and Smithfield branded All Natural
Case Ready Pork at a major national retailer. Our market share in dry sausage,
hot dogs and portable lunches increased and we expanded distribution in deli
meats, dinner sausage, dry sausage and portable lunches. Of particular note,
we continued to add to our leading position in bacon, exceeding 20% branded
market share for the first time, an important hurdle to cross."

"Our fresh pork and international businesses also delivered impressive
quarters. Fresh pork results rallied in the second quarter after a
disappointing first quarter. Widespread retail pork feature activity fueled
domestic demand, while export demand continued to be very good, although large
shipments to China in the prior year caused overall volumes to decline.
Excluding the China carcass business last year, export sales rose in the
quarter. We also continued to focus on moving up the value chain in our fresh
pork business, while generating operating efficiencies to drive improved
earnings," he stated.

"Although we were dissatisfied by the performance in our hog production
business, our successful risk management strategy mitigated losses and
produced results that we believe were significantly better than the industry
as a whole," Mr. Pope said.

"Our strong and consistent cash flow generation, ample liquidity, and
conservative balance sheet are enabling us to return capital to our investors
through continued share repurchases. In the last seventeen months, we have
repurchased 28 million shares, or more than 17% of the company, for about $575
million," he remarked.

Second Quarter Results

Pork

  Fresh Pork

  Fresh pork operating margins were robust at 8%, or $13 per head, and
  rebounded sharply from the prior quarter. Results were positively impacted
  by product mix improvements toward branded value-added products, as well as
  widespread domestic retail feature activity for pork and continued solid
  export demand. Larger industry pork supplies contributed to a 15% decline in
  the USDA pork cutout, but were offset by a 15% drop in live hog prices. The
  company processed 3% more hogs.

  Packaged Meats

  Packaged meats operating margins improved to 7%, or $.15 per pound, driven
  by an enhanced product mix, higher MAP spending and lower raw material
  costs. Volumes grew 2% with strong gains in several key product categories
  including bacon, sausage and spiral hams. In addition, volume and sales
  increased across all key trade channels, including retail, foodservice, deli
  and export and more than offset double-digit declines in the company's
  industrial business.

Hog Production

Hog production operating margins were disappointing at (4)%, or $(8) per head,
but were positively impacted by strong favorable hedge positions that
diminished the impact of higher grain costs and lower live hog prices. Live
hog market prices and raising costs averaged $58 per hundredweight and $69 per
hundredweight, respectively. Head sold increased 2%, resulting from improved
efficiencies from the Hog Production Cost Savings Initiative.

International

International segment operating profit more than doubled to $40.9 million
primarily on robust results in the company's Eastern European hog production
operations, notwithstanding the negative impact of currency translation.
Average unit selling prices improved considerably in Romania, as the company
continued to benefit from recent approval to export to the EU. Recessionary
pressures and higher raw material costs continued to weigh on Campofrio's
margins.

Outlook

"We are encouraged by our solid performance in the first half of fiscal 2013
and anticipate strong results in the back half of the year," Mr. Pope said.

"We expect our packaged meats business to continue to lead the way, delivering
consistent growth with increased share and broader distribution of our core
brands in key product categories. All indications are that 2012 will be a very
successful holiday ham season for our company with our new Smithfield Pecan
Praline and Caramel Apple Spiral Sliced Hams, as well as our Cook's Spiral
Sliced Hams. As such, we anticipate top and bottom line growth in hams in the
third quarter. This year, packaged meats margins should be at the high end of
the normalized range with 2-3% volume growth," he commented.

"Industry analysts forecast record pork exports again in calendar 2013, as
lower global pork production and higher pork prices – especially in the EU –
should bolster demand for U.S. pork. These positive fundamentals should be
supportive of healthy fresh pork profitability in the normalized range for
fiscal 2013," Mr. Pope remarked.

"In the hog production segment, we expect hog prices to recover seasonally in
the second half of the fiscal year. Lower supplies of competing proteins
should also support higher hog prices. Our risk management strategy should
continue to lessen the effects of higher priced grain on our raising costs. We
expect our hog production segment to be slightly profitable by the end of the
fiscal year and approximately breakeven for the full fiscal year," he
continued.

"Operating profits in our international segment should be in the upper half of
the normalized range in fiscal 2013, led by continued strong performance in
our hog production and meat processing businesses in Poland and Romania," Mr.
Pope stated.

"We continue to believe that our current stock price undervalues our company,
witnessed by our significant share repurchases over the past year and a half.
This action reflects our belief in the fundamental strength of our business
and our confidence in our ability to deliver higher quality and more
consistent earnings to our shareholders led by growth in our packaged meats
business. Looking forward, fiscal 2013 should be another very strong year for
company. The future growth prospects for our company are strong and we are
optimistic that the best is yet to come," he concluded.

Conference Call

The company will host a live conference call and audio webcast at 9:00 AM ET
on Thursday, December 6, 2012. Participants can access the call by dialing
(800) 230-1085. The call will be webcast at
http://investors.smithfieldfoods.com/events.cfm and will be archived at this
location. A telephone replay will be available at (800) 475-6701 and will be
archived for two weeks. The replay access code is 271321.

About Smithfield Foods

Smithfield Foods is a $13 billion global food company and the world's largest
pork processor and hog producer. In the United States, the company is also the
leader in numerous packaged meats categories with popular brands including
Smithfield^®, Eckrich^®, Farmland^®, Armour^®, Cook's^®, Gwaltney^®, John
Morrell^®, Kretschmar^®, Curly's^®, Carando^®, Margherita^®, and Healthy
Ones^®. Smithfield Foods is committed to providing good food in a responsible
way and maintains robust animal care, community involvement, employee safety,
environmental, and food safety and quality programs. For more information,
visit www.smithfieldfoods.com and www.smithfieldcommitments.com.

The Smithfield Foods, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=7622

This report contains "forward-looking" statements within the meaning of the
federal securities laws. The forward-looking statements include statements
concerning our outlook for the future, as well as other statements of beliefs,
future plans and strategies or anticipated events, and similar expressions
concerning matters that are not historical facts. Our forward-looking
information and statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in, or implied
by, the statements. These risks and uncertainties include the availability and
prices of live hogs, feed ingredients (including corn), raw materials, fuel
and supplies, food safety, livestock disease, live hog production costs,
product pricing, the competitive environment and related market conditions,
risks associated with our indebtedness, including cost increases due to rising
interest rates or changes in debt ratings or outlook, hedging risk, adverse
weather conditions, operating efficiencies, changes in foreign currency
exchange rates, access to capital, the cost of compliance with and changes to
regulations and laws, including changes in accounting standards, tax laws,
environmental laws, agricultural laws and occupational, health and safety
laws, adverse results from on-going litigation, actions of domestic and
foreign governments, labor relations issues, credit exposure to large
customers, the ability to make effective acquisitions and successfully
integrate newly acquired businesses into existing operations, our ability to
effectively restructure portions of our operations and achieve cost savings
from such restructurings and other risks and uncertainties described under
"Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year
ended April 29, 2012. Readers are cautioned not to place undue reliance on
forward-looking statements because actual results may differ materially from
those expressed in, or implied by, the statements. Any forward-looking
statement that we make speaks only as of the date of such statement, and we
undertake no obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise. Comparisons of results
for current and any prior periods are not intended to express any future
trends or indications of future performance, unless expressed as such, and
should only be viewed as historical data.

                               (Tables follow)

SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)

                              Three Months Ended      Six Months Ended
                              October 28, October 30, October 28, October 30,
                               2012        2011        2012        2011
                              (unaudited)             (unaudited)
Sales                         $3,225.8  $3,312.6  $6,317.1  $6,406.8
Cost of sales                  2,848.5    2,893.0    5,607.6    5,580.1
Gross profit                  377.3      419.6      709.5      826.7
Selling, general and           205.7      200.8      406.8      439.5
administrative expenses
Income from equity method      (6.7)      (5.9)      (7.4)      (10.7)
investments
Operating profit               178.3      224.7      310.1      397.9
Interest expense              41.5       44.2       84.0       92.3
Loss on debt extinguishment    120.7      6.4        120.7      7.6
Income before income taxes    16.1       174.1      105.4      298.0
Income tax expense             5.2        53.4       32.8       95.2
Net income                     $10.9     $120.7    $72.6     $202.8
                                                               
                                                               
Net income per share:                                           
Basic                          $.07      $.74      $.48      $1.24
Diluted                        $.07      $.74      $.48      $1.23
                                                               
Weighted average shares                                         
outstanding:
Basic                          148.4      162.4      151.4      164.1
Effect of dilutive shares      0.7        1.1        0.8        1.1
Diluted                        149.1      163.5      152.2      165.2
                                                               

SMITHFIELD FOODS, INC. AND SUBSIDIARIES
SCHEDULE OF INCOME FROM EQUITY METHOD INVESTMENTS
(In millions)

                                 Three Months Ended   Six Months Ended
                                   October    October   October   October 30,
Equity Investment   Segment        28,        30,       28,       2011
                                   2012       2011      2012
                                 (unaudited)          (unaudited)
Mexican joint       International  $(5.9)   $(1.9)  $(5.5)  $(4.9)
ventures
Campofrio Food      International  (1.3)     (4.0)    (1.4)    (4.2)
Group (CFG) ^(1)
All other equity    Various        0.5       --      (0.5)    (1.6)
method investments
Income from equity                $(6.7)   $(5.9)  $(7.4)  $(10.7)
method investments
                                                             
^(1) CFG prepares its financial statements in accordance with International
Financial Reporting Standards. Our share of CFG's results reflects U.S. GAAP
adjustments. There may be differences between what we report for CFG and what
CFG reports.

CONTACT: Keira Lombardo
         Smithfield Foods, Inc.
         (757) 365-3050
         keiralombardo@smithfieldfoods.com

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