investor presentation november 2011 final[1]

8/3/2019 Investor Presentation November 2011 FINAL[1]

http://slidepdf.com/reader/full/investor-presentation-november-2011-final1 1/26

November2011InvestorPresentaon



Forward-LookingStatements

Thispresentaoncontains“forward-looking”statementswithinthemeaningofthefederalsecurieslaws.

Theforward-lookingstatementsincludestatementsconcerningtheCompany’soutlookforthefuture,aswell

asotherstatementsofbeliefs,futureplansandstrategiesorancipatedevents,andsimilarexpressions

concerningmaKersthatarenothistoricalfacts.TheCompany’sforward-lookinginformaonandstatements

aresubjecttorisksanduncertainesthatcouldcauseactualresultstodiffermateriallyfromthoseexpressed

in,orimpliedby,thestatements.Theserisksanduncertainesincludetheavailabilityandpricesoflivehogs,

rawmaterials,fuelandsupplies,foodsafety,livestockdisease,livehogproduconcosts,productpricing,the

compeveenvironmentandrelatedmarketcondions,risksassociatedwithourindebtedness,including

costincreasesduetorisinginterestratesorchangesindebtrangsoroutlook,hedgingrisk,operang

efficiencies,changesinforeigncurrencyexchangerates,accesstocapital,thecostofcompliancewith

changestoregulaonsandlaws,includingchangesinaccounngstandards,taxlaws,environmentallaws,

agriculturallawsandoccupaonal,healthandsafetylaws,adverseresultsfromon-goingligaon,aconsof

domescandforeigngovernments,laborrelaonsissues,creditexposuretolargecustomers,theabilityto

makeeffecveacquisionsanddisposionsandsuccessfullyintegratenewlyacquiredbusinessesinto

exisngoperaons,theCompany’sabilitytoeffecvelyrestructureporonsofitsoperaonsandachieve

costsavingsfromsuchrestructuringsandotherrisksanduncertainesdescribedintheCompany’sAnnual

ReportonForm10-forfiscal2011.Readersarecauonednottoplaceunduerelianceonforward-looking

statementsbecauseactualresultsmaydiffermateriallyfromthoseexpressedin,orimpliedby,the

statements.Anyforward-lookingstatementthattheCompanymakesspeaksonlyasofthedateofsuch

statement,andtheCompanyundertakesnoobligaontoupdateanyforward-lookingstatements,whether

asaresultofnewinformaon,futureeventsorotherwise.Comparisonsofresultsforcurrentandanyprior

periodsarenotintendedtoexpressanyfuturetrendsorindicaonsoffutureperformance,unlessexpressed

assuch,andshouldonlybeviewedashistoricaldata.

2



Non-GAAPMeasureReconciliaons3



SmithfieldAtAGlance4

Fiscal 2011 Sales=$12.2 billion

Fiscal 2011 Operating Profit=$1.1 billion

Pork Sales=$10.3billionOperangProfit=

$753million

Fresh Pork Sales=$4.6billionOperangProfit=

$407million

Packaged MeatsSales=$5.7billionOperangProfit=

$347million

Hog ProductionSales=$2.7billionOperangProfit=

$224million

InternationalSales=$1.3billionOperangProfit=

$116million

Note:Segmentsalesbeforeinter-segmenteliminaons;FreshPorkandPackagedMeatsresultsrepresentmanagement’sesmatedallocaonoftotalPorkSegmentresults



5

HogProducon

19%

Internaonal9% PackagedMeats40%

FreshPork

32%

TotalPork

72%

SalesbySegment

Pork segmentaccounted for nearly three-quarters of

segment sales infiscal 2011

Note:Segmentsalesbeforeinter-segmenteliminaons



LeadingPosionsInPorkIndustry6

28%

Others

27%

Tyson17%

JBS

11%

Cargill

9%

Hormel

8%

Pork Processing

Sources:NaonalPorkBoardSpring2009;U.S.PorkPowerhouses2011

14%

Triumph6%

4%

3%

3%

Others70%

Hog Production

Seaboard Maschhoffs Prestage

#1 #1



#1U.S.PackagedPorkCompany7

Retail

45%

Foodservice

23%

Export

13%

Deli7%

Processor/

Industrial

12%

Sales

Retail

39%

Foodservice

16%

Export

16%

Deli

3%

Processor/

Industrial26%

Volume

Note:FY11Porksegmentsalesandvolumebeforeinter-segmenteliminaons

#1Supplier to

RetailFoodservice

Export

#1Supplier to

RetailFoodservice

Export



Private

Label/

Other24%

Core

Brands

65%

Non-Core

Brands

11%

Branded

76%

Consumer-WinningBrands8

Note:BasedonFY12Q1Porksegmentpackagedmeatsretailvolume,includingdelianddirectstoredelivery

More than three-quarters of Smithfield’spackaged meats sales

are branded

Core brandsaccount for

85% ofbranded



EarningsGrowthDrivenByPorkSegment9

$219

$449$483

$573

$753

$113 $137

$-

$100

$200

$300

$400

$500

$600

$700

$800

FY07 FY08 FY09 FY10 FY11 FY11Q1 FY12Q1

P o r k s e g m e n t a d j u s t e d

o p e r a 1 n g

p r o fi t ( i n m i l l i o n s

)

Freshpork Packagedmeats TotalPorkSegment

Note:Resultsrepresentmanagement’sesmatedallocaonoftotalPorkSegmentresults;FY09andFY10resultsadjustedforrestructuringandimpairmentcharges;Refer

toNon-GAAPmeasurereconciliaons

Pork segment has produced four consecutive years of record

earnings and tripled profitabilitysince fiscal 2007



PackagedMeats10


toNon-GAAPmeasurereconciliaons;Salesbeforeinter-segmenteliminaons

Fiscal2011 Fiscal 2012

Sales $5.7billion

Volume2.7billion

pounds

≈3% volumegrowth goal

Operang

Profit

$346.9

million

Normalized

Operang

ProfitRange

10to15

centsper

pound

High end ofnormalizedoperating

profit range

$0.06

$0.10$0.12

$0.17

$0.13

$0.11

$0.17

4.6%5.6%

6.9%

9.6%

6.1%

5.3%

7.5%

FY07 FY08 FY09 FY10 FY11 FY11

Q1

FY12

Q1

AdjustedOperangprofit($perpound)AdjustedOperangprofit(%ofsales)



17%

0%

4%

17%

-1% -2%

16%12% 11%

8% 5% 4%

138%

23% 23%

13%

5% 4%

BonelessHam

Steaks

Bacon Tub

Lunchmeats

BBQ SmokedDinner

Sausage

Portable

Lunches

YOYVolumeGrowth

Category SmithfieldTotal SmithfieldLeadBrand

AchievingStrategicBrandedGrowth11

Source:InformaonResources,Inc.(IRI)12weeksending10/09/11



ArmourLunchkitwithApples

NewArmourAcvePacksofferslunchkitswithbeKer-for-youingredients

forconsumerswithacvelifestyles

ArmourLowerSodiumPepperoni

Innovavefull-flavorproductpacks50percentlesssodiumthanregular

pepperoni

SmithfieldPouchPackBacon

Innovavepackagedesignbreaksgroundforindustryandconsumerswithtwostay-freshpoucheseachcontaining

sixslicesofbacon

ProductInnovaon12

Convenience

Health&

Nutri1on

Packaging



Billboards

ConsumerPromoons

Digital

FSIs

Print

Radio

RetailPOS

SocialMedia

TelevisionCommercials

Website

BrandAcvaon13

Smithfield hasincreased its

consumer marketing

spending by20% this year



FreshPork

$1

$5

$3 $3

$15

$7

$6

0.9%

3.4%2.0% 1.9%

8.9%

4.0%2.8%


Q1

FY12

Q1

AdjustedOperangprofit($perhead)AdjustedOperangprofit(%ofsales)


Sales $4.6billion Balanceddomestic

supply &demand

Very strong

exports

Volume27.3million

hogs

Operang

Profit

$406.5

million

Normalized

Operang

ProfitRange

$3-7per

head

Abovenormalizedoperating

profit range


toNon-GAAPmeasurereconciliaons;Salesbeforeinter-segmenteliminaons

14

Improvedoutlook

Improvedoutlook



China-H

26%

Japan

26%

Mexico

22%

orea7%

Russia

6%

Other

13%

Smithfield FY 12 Q1Export Markets by Volume

Exports

ü Volume+13%YOY

ü Dollars+28%YOY

Note:Livehogcostesmateweekending10/22/11;EUisaverageofDenmark,France,Germany,Hungary,Netherlands,Poland,RomaniaandSpain;FY12Q1Smithfield

exportmarkets;OtherCategoryconsistsofthefollowingcountries:Angola,Aruba,Australia,Bahamas,Bermuda,Canada,Caribbean,Chile,Columbia,CostaRica,Croaa,Cuba,DominicanRepublic,Ecuador,ElSalvador,Guam,Guatemala,Hai,Honduras,EU,Indonesia,Macedonia,Malaysia,NewZealand,Panama,Peru,PuertoRico,Singapore,

Tahi,Ukraine,Uruguay,Venezuela,Vietnam,Philippines,Taiwan

$0.67 $0.69$0.74

$1.21 $1.22$1.32

$1.66

M e x i c o

U . S .

E U

C h i n a

S o u t h K o

r e a

R u

s s i a

J a

p a n

Economics Supportive ofU.S. Pork Exports

LiveHogPriceEsmate($perpound)

15



7%

19%22%

Industry

% of Pork Production Exported

2000 2010 January-August2011

20%

24%

Smithfield

PorkExportsTrendingToRecord16

Worldpopulaonhas

increasedalmost17%

GlobalGDPhasnearlydoubled

Worldhoginventories

havedeclined

StronggrowthinU.S.porkexports

Since 2000…



$15

$(26) $(28)

$13$17

$30

12.1%

-1.1%

$(1)

-20.2%-22.5%

7.9%9.9%

15.2%


Q1

FY12

Q1

AdjustedOperangprofit($perhead)AdjustedOperangprofit(%ofsales)


Sales$2.7

billion Continuedlow global

proteininventories

Raisingcosts in mid

$60s

Volume16.4million

hogs

Adjusted

Operang

Profit

$214.6

million

Normalized

Operang

ProfitRange

$10-15per

head

Normalizedoperating

profit range

HogProducon17

Improved

outlook Note:FY10,FY11,andFY12Q1resultsadjustedforcertainsignificantitems;RefertoNon-GAAPmeasurereconciliaons;Salesbeforeinter-segmenteliminaons

Improvedoutlook



ImprovedHogProduconOutlook18

Corn priceshavedeclinedwhile hog

futures haveincreased

N o v - 1 1

D e c - 1 1

J a n - 1 2

F e b - 1 2

M a r - 1 2

A p r - 1 2

M a y - 1 2

J u n - 1 2

J u l - 1 2

A u g - 1 2

S e p - 1 2

O c t - 1 2

ISU Model

Cost of Production

09/08/11 11/01/11

N o v - 1 1

D e c - 1 1

J a n - 1 2

F e b - 1 2

M a r - 1 2

A p r - 1 2

M a y - 1 2

J u n - 1 2

J u l - 1 2

A u g - 1 2

S e p - 1 2

O c t - 1 2

Live Hog Futures

09/08/11 11/01/11

Note:Industrycostofproduconbasedonfuturescurveforgrainson11/01/11;costispre-interest

$4perhundred-

weight$1per

hundred-

weight



Industry hog productionprofitability averages

normalized range of $10-15 per head for next twelve months

19

Note:Industryprofitabilitybasedonfuturescurvesforlivehogsandgrainson11/01/11;costispre-interest

HogProduconProfitability

$55

$60

$65

$70

$75

N o v - 1 1

D e c - 1 1

J a n - 1 2

F e b - 1 2

M a r - 1 2

A p r - 1 2

M a y - 1 2

J u n - 1 2

J u l - 1 2

A u g - 1 2

S e p - 1 2

O c t - 1 2

$

p e r h u n d r e d w e i

g h t

ISUModelCostofProducon LiveHogFutures

20



SensivityAnalysis20

$1perbushelin

corn

$10perhead

$50pertonin

soybeanmeal

$3perhead

$5percwtinlivehog

price

$13perhead

21



Internaonal21

$46

$3 $5

$128$116

$25

$0


Q1

FY12

Q1

Operangprofit($inmillions)


Sales

$1.3

billion

Continuedhigh rawmaterial

costs & softdemand

Sequentialimprovement

from Q1

Operang

Profit

$115.9

million

Normalized

Operang

ProfitRange

$50-125

million

Belownormalizedoperating

profit range

Note:Salesbeforeinter-segmenteliminaons

22



$68.6

$65.5

$60.3

$51.0

$48.1

FY11

Q1

FY11

Q2

FY11

Q3

FY11

Q4

FY12

Q1

FY12

Q2*

FY12

Q3*

FY12

Q4*

QuarterlyInterestExpense($inmillions)

Project 100Goal =

$45 million

BalanceSheet22

*Esmate

Balance Sheet

Weakness to Strength

• Eliminated$100millioninannualinterestexpense

• Reduceddebtby$1billion• Extendedandsmootheddebt

maturies

• Improvedcreditmetrics

• Reducedidlecash• Maintained$1billionliquidity• Upgradedbyrangagencies

• Negoatednewrevolvingcreditfacilies

23



MaintainingConservaveBalanceSheet23

FY12Q1 Target

Liquidity $1.2billion $500 million – $1 billion

NetdebttoTTMadjustedEBITDA 1.6x <3x

Netdebttototal

capitalizaon 35% <40%

Note:Netdebtisequaltolong-termdebtandcapitalleaseobligaons,includingcurrentporon,lesscashandcashequivalents;Netdebttototalcapitalizaoniscomputed

usingnetdebtdividedbythesumofnetdebtandshareholders’equity;RefertoNon-GAAPmeasurereconciliaons

FY 12 YTDRepurchased$111millionof

stock

Repaid$115millionof2011and2014bonds

Invested$100millionin

pensionplans

24



UsesofExcessCash

Cash

Reinvestinpackagedmeats

business

Sharerepurchases

Extraordinarypension

contribuon

Debtreducon

Acquire

brandedpackagedmeats

companies

24

25



InvestmentThesis25

• Recordyearoveryearresultsforfivestraightquarterswithposiveoutlookforfiscal2012• ImprovedPorkandHogProduconsegmentoutlook

• Connuingtoexhibitstrongpackagedmeatspricingpower

• Capitalizingonrobustexportdemand

• Compevecoststructureinalloperangsegments• Reduceddomesccornexposureby40%sincefiscal2008

Delivering quality and consistent earnings growth

• Brandsdemonstrangstrongpipelineforinnovaonandbrandacvaon

• Growingcorebrandporoliothroughincreasedconsumermarkeng• Resumingevaluaonofbrandedpackagedmeatsacquisionopportunies

Driving profitable top line growth

• Robustfinancialpoliciesremainapillarofstrategy

• Ulizingexcesscashtorepurchasesharesandreducedebt

Solid financial management



November2011InvestorPresentaon

investor presentation november 2011 final[1]

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