Source: Lisa M. Keefe, MEATINGPLACE, 4/14/15

After 18 months spent focused on debt reduction, Smithfield Foods is “quickly approaching the point where we can afford to be looking externally at opportunities,” said Ken Sullivan, executive vice president and CFO of Smithfield, in a conference call with analysts this morning discussing the company’s fourth quarter 2014 financial results.

“Certainly in packaged meats that is our focus, and we are committed to growth in that end of the business both organically and, if the situation is right, through acquisition,” Sullivan continued, although he declined to name any specific companies that might be acquisition targets.

Smithfield released its financial results from its 2014 fiscal fourth quarter last month. Smithfield, a subsidiary of China-based WH Group Ltd., reported fourth-quarter net income climbed to $152.6 million versus $34.7 million a year ago. Sales rose 5 percent to $4.1 billion. Sales in the packaged meat division increased 10 percent to $2.2 billion.

The U.S. company continues to seek debt reduction opportunities, Sullivan said, particularly in the wake of Smithfield’s reorganization of its corporate structure. Smithfield now operates around four core businesses, eliminating the more complicated system of independent operating companies in different parts of the country.

“We abandoned our [independent operating companies] model, which tended to foster silos,” Sullivan said. “[CEO C. Larry Pope] and I both believe the (new corporate structure, dubbed One Smithfield) will … be a real catalyst for profit improvement as we are now much better positioned to optimize our sprawling manufacturing platform — which, incidentally, we have 40 plants in the U.S. and another 10 or so internationally. We think we can take cost out of logistics and distribution. We think we can better manage the front end of our sales process and allow us to manage the crown jewel, which is our brand portfolio, in a more cohesive [way].”

In response to an analyst’s question, Sullivan noted that the cost savings would not be in the form of closed plants or reduced production. “We're fairly satisfied with the utilization capacities of our plants. In fact, we've got a number of capital projects this year to expand the capacity in our plants. So it’s not about plant rationalization, it is about manufacturing optimization,” Sullivan said.

Finally, Sullivan projected that Smithfield’s hog supply in 2015 will be up by 5 percent to 8 percent over last year, as hog producers recover from the effects of the PEDv outbreak.

Smithfield, therefore, is working to boost its pork exports. “Last year our exports were up 6.8 percent,” Sullivan said. “We're obviously going to have more meat this year and going to need to get that out of the country. We've got the perfect channel with the WH Group to build a repeatable, sustainable export business and we are working on a pretty exciting program right now as we speak to really significantly increase our exports year-over-year.”

With pork prices returning to more normal levels this year, he added, “[D]on't be surprised to see our exports more than double to [China] in 2015.”

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