Earlier this week, Smithfield Foods officials released notice of a major restructuring plan. It includes cutting the number of independent operating companies from seven to three, closing six plants by December and eliminating 1,800 jobs in the pork group.
The plants to be closed:
- The Smithfield Packing Co. South facility in Smithfield, Va. Case-ready, fresh pork production will move to the Smithfield North plant and a North Carolina facility. The plant is scheduled to close in December.
- A facility producing packaged meats in Plant City, Fla., will close in September.
- The Smithfield Packing Co. plant in Elon, N.C., will close by late summer, and its country ham production will end.
- A John Morrell plant in Great Bend, Kan., which processes fresh pork and smoked meats will close in July.
- Farmland Foods will close its New Riegel, Ohio, plant in April. The spiral ham production will move to other facilities.
- An Armour-Eckrich Meats, LLC., in Hastings, Neb., producing packaged meats will close in July.
The plan includes the following other actions at various operating units:
- Smithfield Foods will reduce its independent companies in the pork group to three -- Smithfield Packing Co., John Morrell & Co. and Farmland Foods. The four others will be rolled into the various business units of the three remaining.
- John Morrell and Farmland Foods will merge their respective fresh-pork sales forces into Smithfield Packing Co. in the East and Farmland Foods in the Midwest and West.
- Patrick Cudahy, a producer of bacon, dry sausages, hams and other specialty packaged meats, will become part of the John Morrell Group.
- Carando Foods, a unit of Farmland Foods producing Italian deli and specialty meats, also will be moved to the John Morrell Group.
- Farmland Foods will strengthen its foodservice business by bringing in North Side Foods Corp., a large supplier to the quick-service restaurant industry.
- Cumberland Gap Provision Co., a unit of the John Morrell Group and producer of hams, sausages and other specialty packaged meats, will integrate with Smithfield Packing Co.
- International sales organizations responsible for exports of several independent operating companies will consolidate into one to form Smithfield Foods International Group. This consolidation already is under way.
Smithfield officials expect this restructuring to produce annual cost savings after restructuring expenses of about $55 million in fiscal 2010 and $125 million by fiscal 2011.
Other pre-tax charges and non-cash asset writedowns also will apply.
Separately, Larry Pope, Smithfield president and chief executive officer, says the company has entered into amendments of its U.S. and European credit facilities. Among other things, the amendments provide for a reduction of the applicable interest coverage ratio for specified periods through third-quarter fiscal 2010.
"These amendments are very positive developments, for they provide the company with sufficient time and financial flexibility to bridge the current hog cycle and uncertain economic environment," says Pope. "This action should remove any question about the financial strength of Smithfield Foods. We have eliminated a major distraction, allowing our management team to focus full time on the restructuring plan and running the business."
Pope contends that Smithfield's
restructuring plan reflects the company's ongoing efforts to integrate past acquisitions and improve cost structure — not the economic recession. He says that the company has been discussing such a plan for nearly a year. Some facilities were running at 50 percent of capacity, others were duplicating operations, he adds.
Pope acknowledges that Smithfield's production business has been a major drag on company earnings, its pork business has generated strong earnings over the past year. In its second fiscal quarter, Smithfield reported a net profit of $4.2 million, down from $17.4 million in the same quarter a year earlier. Pork operating profit rose nearly 50 percent to a second-quarter record of $93.4 million from $62.9 million a year earlier. However, hog production operating profit plummeted to a loss of $96.8 million from a profit of $111.6 million in the year-ago period as feed costs hit record highs.