THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, August 29, 1996 TAG: 9608290446
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LON WAGNER, STAFF WRITER
LENGTH: 69 lines
Smithfield Foods Inc. battled through some tough conditions last year, but CEO Joseph W. Luter III told shareholders Wednesday that the company is ``much more optimistic'' about the coming year and beyond.
Make no mistake, Luter said, the next six to nine months will be difficult. Pork-packing companies like Smithfield face some of the highest corn prices in history and a threat from companies adding processing capacity in the Midwest.
``What you have today is an industry that is not making any money processing live hogs,'' Luter said. ``When that changes - and it will change, we've been through it before - I personally feel our earnings are going to be a pleasant surprise to a lot of people.''
Luter's comments came during Smithfield Foods' annual meeting at the Omni Waterside Hotel in Norfolk. At the time of last year's meeting, Smithfield was a much smaller company. But its acquisition of John Morrell & Co. at the end of last year doubled the size of the Norfolk-based company.
Under Luter's leadership over the past two decades, Smithfield Foods has capitalized on tough times in the hog industry by taking on more debt to acquire weaker companies. During a 1981 downturn, Smithfield bought hometown competitor Gwaltney of Smithfield. Last year's target was Morrell, and Luter hinted Wednesday that the company may seek to take advantage of the current crunch.
``I will tell you this, we're not content with the size we are today,'' Luter said, drawing laughter by adding, ``and we're out there sniffing around, if you will.''
Within the next year, Smithfield Foods' annual sales are expected to top $4.5 billion. John O. Nielson, president and chief operating officerof Smithfield Foods, told shareholders that Smithfield Packing Co. - the parent company's fastest-growing division - will soon be a $2 billion-a-year company.
Smithfield Packing Co. is the division responsible for one of Smithfield Foods' newest and most high-profile ventures: processing hogs that were genetically engineered to produce leaner pork.
Smithfield Foods this year rolled out its Lean Generation pork products based on the genetically engineered hogs.
``Lean Generation is being accepted at price premiums in the market,'' Nielson said. ``Demand is such that we might face a shortage in raw materials (hogs) in the future for a short period.''
One reason for the potential shortfall, Luter said, is that the grocery-store division of Publix Super Markets Inc. is planning to remove all brands of fresh pork from its shelves and replace it with Lean Generation pork. Publix has more than 200 stores in Florida, Georgia and South Carolina.
Smithfield is expected to slaughter 2 million NPD hogs - the name of the breed used for Lean Generation products - this year. Next year, that number will grow to 3 million, Luter said. Smithfield's Bladen County, N.C., slaughtering plant has also increased its capacity. Four years ago, workers at the plant killed 8,000 hogs a day. Today, that number has more than quadrupled to 36,000 hogs daily.
With the increased hog production in North Carolina has come criticism over environmental impact. Scott & Stringfellow Inc. analyst George Shipp asked Luter to address the company's environmental record, which is a concern to investors, he said.
Luter said the company's problems in Virginia will soon be over, since both of the company's Smithfield packing plants will be hooked into the Hampton Roads Sanitation District by the end of the year.
In North Carolina, the Bladen County slaughtering operation has some of the latest pollution controls available and shouldn't cause problems, he said.
``There's been a strong movement in North Carolina in response to real or imagined environmental problems,'' Luter said. ``Frankly, from a selfish standpoint it works out in our favor because it might keep out or delay our competition from coming into the area.'' by CNB