Smithfield Foods Inc. (SFD, Financial) filed Quarterly Report for the period ended 2011-01-30.
Smithfields Foods Inc. has a market cap of $3.72 billion; its shares were traded at around $22.38 with a P/E ratio of 13.5 and P/S ratio of 0.3.
Our domestic raising costs spiked to all-time highs in the second quarter of fiscal 2009, reaching a quarterly average of $63 per hundredweight. Since that time, raising costs have moderated substantially to the low $50's per hundredweight. Spiking feed grain prices are again expected to drive raising costs higher into the mid-to-upper $50's per hundredweight during the fourth quarter of fiscal 2011, and then trend into the low-to-mid $60's in fiscal 2012. At the same time however, the current futures curve for lean hogs suggests robust live hog pricing well into fiscal 2012. Consequently, we expect our live hog production operations to be modestly profitable in the near term. Longer term, we have developed a plan, described more fully below, to improve our cost structure. We expect the cost savings plan will reduce our base raising costs by approximately $2 per hundredweight. However, the plan may take several years to complete before the benefits are fully realized.
We maintain comprehensive general liability and property insurance, including business interruption insurance. Through the second quarter of fiscal 2011, we were advanced $75.5 million toward the ultimate settlement of the claim. In December 2010 (fiscal 2011), we reached an agreement with our insurance carriers to settle the claim for a total of $208.0 million. We allocated these proceeds to first recover the book value of the property lost, out-of-pocket expenses incurred and business interruption losses that resulted from the fire. The remaining proceeds were recognized as an involuntary conversion gain of $120.6 million in the Corporate segment in the third quarter of fiscal 2011. The involuntary conversion gain was classified in a separate line item on the consolidated condensed statement of income. Based on an evaluation of business interruption losses incurred, we recognized $2.9 million and $22.5 million in the three months ended January 30, 2011 and January 31, 2010, respectively, and $15.8 million and $22.5 million for the nine months ended January 30, 2011 and January 31, 2010, respectively, of the insurance proceeds in cost of sales in our Pork segment to offset business interruption losses.
In November 2010 (fiscal 2011), we commenced an offer to purchase for cash (the November Tender Offer) up to an aggregate of $337.0 million principal amount of our outstanding 2011 Notes. The November Tender Offer expired on December 1, 2010. As a result of the November Tender Offer, we paid $332.4 million to repurchase notes with a face value of $318.4 million in the third quarter of fiscal 2011. We recognized a loss of $14.1 million in the third quarter of fiscal 2011, including the write-off of related unamortized debt costs, as a result of the November Tender Offer.
In January 2011 (fiscal 2011), we completed the sale of certain hog production assets located in Oklahoma and Iowa. As a result of these sales, we received total net proceeds of $70.4 million and recognized gains totaling $6.9 million, after allocating $17.0 million of goodwill to these asset groups. The gains were recorded in selling, general and administrative expenses in our Hog Production segment in the third quarter of fiscal 2011. We reclassified the carrying amount of these disposal groups, which consisted of $26.4 million of property, plant and equipment, $21.9 million of inventories and $17.0 million of goodwill, to prepaid expenses and other current assets in the consolidated condensed balance sheet as of May 2, 2010. The operating results and cash flows from these asset groups were not considered material for separate disclosure.
As a result of the closure, we recorded charges of $13.1 million in the Pork segment in the third quarter of fiscal 2010. These charges consisted of $3.6 million for the write-down of long-lived assets, $2.5 million of unusable inventories and $7.0 million for estimated severance benefits pursuant to contractual and ongoing benefit arrangements. Substantially all of these charges were recorded in cost of sales in the Pork segment.
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Smithfields Foods Inc. has a market cap of $3.72 billion; its shares were traded at around $22.38 with a P/E ratio of 13.5 and P/S ratio of 0.3.
Highlight of Business Operations:
Net income was $202.6 million, or $1.21 per diluted share, in the third quarter of fiscal 2011, compared to a net loss of $37.3 million, or $.22 per diluted share, in the same quarter last year. The following summarizes the results of each of our reportable segments for the third quarter of fiscal 2011 compared to the third quarter of fiscal 2010:Our domestic raising costs spiked to all-time highs in the second quarter of fiscal 2009, reaching a quarterly average of $63 per hundredweight. Since that time, raising costs have moderated substantially to the low $50's per hundredweight. Spiking feed grain prices are again expected to drive raising costs higher into the mid-to-upper $50's per hundredweight during the fourth quarter of fiscal 2011, and then trend into the low-to-mid $60's in fiscal 2012. At the same time however, the current futures curve for lean hogs suggests robust live hog pricing well into fiscal 2012. Consequently, we expect our live hog production operations to be modestly profitable in the near term. Longer term, we have developed a plan, described more fully below, to improve our cost structure. We expect the cost savings plan will reduce our base raising costs by approximately $2 per hundredweight. However, the plan may take several years to complete before the benefits are fully realized.
We maintain comprehensive general liability and property insurance, including business interruption insurance. Through the second quarter of fiscal 2011, we were advanced $75.5 million toward the ultimate settlement of the claim. In December 2010 (fiscal 2011), we reached an agreement with our insurance carriers to settle the claim for a total of $208.0 million. We allocated these proceeds to first recover the book value of the property lost, out-of-pocket expenses incurred and business interruption losses that resulted from the fire. The remaining proceeds were recognized as an involuntary conversion gain of $120.6 million in the Corporate segment in the third quarter of fiscal 2011. The involuntary conversion gain was classified in a separate line item on the consolidated condensed statement of income. Based on an evaluation of business interruption losses incurred, we recognized $2.9 million and $22.5 million in the three months ended January 30, 2011 and January 31, 2010, respectively, and $15.8 million and $22.5 million for the nine months ended January 30, 2011 and January 31, 2010, respectively, of the insurance proceeds in cost of sales in our Pork segment to offset business interruption losses.
In November 2010 (fiscal 2011), we commenced an offer to purchase for cash (the November Tender Offer) up to an aggregate of $337.0 million principal amount of our outstanding 2011 Notes. The November Tender Offer expired on December 1, 2010. As a result of the November Tender Offer, we paid $332.4 million to repurchase notes with a face value of $318.4 million in the third quarter of fiscal 2011. We recognized a loss of $14.1 million in the third quarter of fiscal 2011, including the write-off of related unamortized debt costs, as a result of the November Tender Offer.
In January 2011 (fiscal 2011), we completed the sale of certain hog production assets located in Oklahoma and Iowa. As a result of these sales, we received total net proceeds of $70.4 million and recognized gains totaling $6.9 million, after allocating $17.0 million of goodwill to these asset groups. The gains were recorded in selling, general and administrative expenses in our Hog Production segment in the third quarter of fiscal 2011. We reclassified the carrying amount of these disposal groups, which consisted of $26.4 million of property, plant and equipment, $21.9 million of inventories and $17.0 million of goodwill, to prepaid expenses and other current assets in the consolidated condensed balance sheet as of May 2, 2010. The operating results and cash flows from these asset groups were not considered material for separate disclosure.
As a result of the closure, we recorded charges of $13.1 million in the Pork segment in the third quarter of fiscal 2010. These charges consisted of $3.6 million for the write-down of long-lived assets, $2.5 million of unusable inventories and $7.0 million for estimated severance benefits pursuant to contractual and ongoing benefit arrangements. Substantially all of these charges were recorded in cost of sales in the Pork segment.
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