UNITED STATES-Smithfield Foods Inc. (SFD) announced Tuesday it plans to close six plants and shed 1,800 staff, as the world’s largest pork processor by revenue battles the liquidity squeeze that has already pushed rivals into bankruptcy and widespread restructuring.
The U.S. company is already committed to cutting production by 10% in the year to end-April, mirroring efforts to arrest the domestic oversupply in poultry that is spilling into exports as overseas demand starts to cool.
Smithfield, like rivals Tyson Foods Inc. (TSN) and bankrupt Pilgrim’s Pride Inc., has already seen margins fall and liquidity drained from a weakening demand and supply balance that collided with soaring feed costs last year, exacerbated by wrong-way hedges when corn prices started to decline.
The company is closing six of its 40 processing plants and will cut 3.4% of its workforce in a move that will impact more than 3,000 employees, though some will be relocated as part of a restructuring of its vertically-integrated operations that will eliminate four independent operating companies.
Smithfield’s loss-making hedges are not expected to roll-off until the end of its financial year in April, said analysts, and the restructuring will see it take an $85 million pretax charge in the quarter to Feb. 1, with another $30 million spread over the following three quarters. The moves are expected to save $55 million in fiscal 2010, with $125 million anticipated in the following 12 months.
The company did not comment on any further production cuts, but Chief Executive Larry Pope is scheduled to address the Consumer Analysts’ Group of New York conference later Tuesday.
Smithfield accounts for around a third of the U.S. processed pork market, and while prices have started to strengthen, it has been hit by consumers switching down from branded products to white-label offerings. While pork remains the world’s most consumed meat by volume - above poultry and beef - exports are expected to slow from the mix of weakening economic growth and the strengthening U.S. dollar.
