Smithfield Foods said Feb. 17 it would close six processed meat plants and eliminate 1,800 jobs while retaining its current hog slaughter capacity as it restructures its pork group.
Smithfield, the largest U. S. hog and pork producer, makes more than 50 brands of pork and turkey products including John Morrell, Eckrich and Armour. None of the brands will be discontinued, the company said.
While Smithfield said it expects to cut a net 1,800 jobs in the restructuring, some workers will be offered transfers to other units.
“I just think they are doing what they need to to get things shored up,” said Rich Nelson, an analyst with the agricultural advisory company Allendale Inc.
“The (pork) processing side will make about half the profits it had in 2008 for (calendar) 2009 due to lower hog numbers combined with mixed to lower demand for pork,” he said.
Four of Smithfield’s existing independent companies will be combined under The Smithfield Packing Co. Inc., John Morrell and Co. and Farmland Foods Inc. units, Smithfield said.
The restructuring is expected to save about $55 million in fiscal 2010, and $125 million by fiscal 2011, Smithfield said (all figures US$).
“We have long been an advocate of greater centralization in Smithfield’s pork segment,” Kenneth Zaslow, BMO Capital Markets equity analyst, wrote in a research note. “The cost savings are somewhat larger than our expectation and likely will structurally improve Smithfield’s pork-processing margins.”
John Morrell and Farmland Foods will merge their fresh pork sales groups as part of the plan, Smithfield said.
The plants to be closed are in Smithfield, Virginia; Plant City, Florida; Elon, North Carolina; Great Bend, Kansas; New Riegel, Ohio; and Hastings, Nebraska.
Smithfield has also entered into amendments of its U. S. and European credit facilities.
The amendments provide, among other things, for a reduction of the applicable interest coverage ratio for specified periods through its third quarter of 2010, CEO C. Larry Pope said in a statement.
“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,” he said.
“This action should remove any question about the financial strength of Smithfield Foods.”
– Additional reporting for Reuters by Aarthi Sivaraman