Smithfield Foods ends first quarter with liquidity of $1.3 billion

By Lisa Kerner

Charlotte, N.C., Sept. 4 - Smithfield Foods, Inc. had a "solid" quarter in "a very volatile period" during which time it refinanced its balance sheet, president and chief executive officer C. Larry Pope said during the company's earnings call for the first quarter of fiscal 2013 on Tuesday.

Smithfield ended the quarter on July 31 with liquidity of about $1.3 billion.

The Smithfield, Va.-based food company redeemed $694 million of debt subsequent to quarter's end and reduced interest expense by 12%.

Smithfield's refinancing activities included the launch of a $1 billion 6 5/8% senior notes offering due 2022 for net proceeds of $981 million.

Also, Smithfield tendered for all of its outstanding 2013 bonds with a 7¾% coupon. The company consequently repurchased $105 million of the $160 million outstanding balance of the 2013 bonds.

In addition, Smithfield tendered for all its outstanding 2014 senior secured bonds with a 10% coupon and subsequently repurchased the entire $589 million outstanding balance of the 2014 bonds.

Smithfield also secured a two-year extension for its $200 million bank term loan to fiscal 2019 from fiscal 2017, according to a company news release.

"This financing effectively clears the overhang surrounding debt issued a few years ago and repositions our company's balance sheet," Pope said.

According to chief financial officer Robert "Bo" Manly III, with the exception of the $400 million convertible bond maturity in fiscal 2014, the refinancing actions eliminate all material term debt maturities until fiscal 2018.

Manly said the company intends to retire its 2013 debt through cash flow and possibly a new refinancing.

During the first quarter, Smithfield repurchased 7.4 million shares for $145 million, bringing the total repurchased to 17.4 million shares, or more than 10% of the company, for $350 million in just over a year.

"Given our strong liquidity and favorable outlook for the full fiscal year, ongoing share repurchases remain a priority," Pope said in a news release.

Full-year results are expected to rebound into the normalized range, and hedging activities will substantially limit any loss and put Smithfield within "striking distance of a modest profit," said Manly, who predicted a "tough but solid year."

Packaged meats profit rises

For the first fiscal quarter of 2013, Smithfield reported net income of $61.7 million, or $0.40 per diluted share.

The packaged meats segment saw a 29% increase in operating profit to a first-quarter record of $130.6 million.

Pope said he was disappointed with the poor performance of Smithfield's fresh pork business. However, the first quarter is typically the most difficult time of the year, the release said.

The fresh pork business segment faces continued pressure from higher supply prices and weak domestic retail demand.

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