Smithfield Foods halfway to achieving $1 billion debt-reduction goal

By Jennifer Lanning Drey

Savannah, Ga., Dec. 9 - Smithfield Foods, Inc. retired more than $500 million of bonds in the first half of fiscal 2011, putting the company halfway to achieving its previously stated $1 billion debt-reduction goal, Robert "Bo" Manly, Smithfield's chief financial officer, said Thursday during the company's earnings conference call for the second quarter of fiscal 2011.

"We will likely continue to look opportunistically at buying back additional debt in the market," Manly said.

Smithfield had $1.333 billion of available liquidity at the Oct. 31 end of the second quarter.

"The story of the balance sheet this quarter is liquidity and debt retirement," Manly said.

During the second quarter, Smithfield repurchased $204 million of its 7% notes due August 2011. Subsequent to the end of the period, the company initiated the successful tender of another $318 million of the 2011 bonds.

Year-to-date, the company has retired early 87% of the 7% notes due 2011.

Manly also noted that in the first week of December, Smithfield closed on the sale of its 49% interest in Butterball, LLC, netting $167 million in cash. The company previously said those proceeds would also be used for debt reduction.

Additionally, Manly said Smithfield has reached a tentative agreement with its insurance carriers regarding the July 2009 fire at its Patrick Cudahy plant in Wisconsin. The settlement is likely to be a third-quarter event, resulting in both cash and a one-time gain of about $120 million, he said.

Smithfield is likely to reach its goal of reducing its interest rate on a run-rate basis by $100 million per year no later than April 2012, he said.

"Our significantly improved EBITDA and lower debt levels have dramatically improved our balance sheet metrics. This should be well received by the ratings agencies," Manly said.

The company also reported Thursday that its second-quarter consolidated sales rose to $3.0 billion, up more than 11% from the $2.7 billion of consolidated sales reported in the same quarter in fiscal 2010.

The increase primarily reflected higher average unit selling prices in the pork segment and higher live hog market prices.

Smithfield Foods is a Smithfield, Va., pork processor and hog producer.

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