990621 Smithfield Foods Achieves Record Earnings

Smithfield, VA - Smithfield Foods, Inc. reported record net income for fiscal 1999, its third consecutive year of record results.

Net income for the 52-week year ended May 2 totaled $94.9 million, or $2.32 per diluted share, compared with net income of $53.4 million, or $1.34 per diluted share, for the 53-week fiscal 1998. Sales for fiscal 1999 declined slightly to $3.77 billion from $3.87 billion in 1998 due to sharply lower hog prices which resulted in lower prices at the retail level. However, overall sales volumes of fresh and processed meats rose 10.2%, to nearly 5.3 billion pounds. This volume increase reflected an increase in pounds sold in the base business of both fresh and processed meats as well as additional volume related to businesses acquired in the current fiscal year.

Net income for fiscal 1998 included a nonrecurring charge of $12.6 million ($.32 per diluted share), reflecting penalties imposed against the Company in a case brought by the U.S. Environmental Protection Agency. The judgment has been appealed. Excluding the nonrecurring charge, the Company had net income of $66.0 million, or $1.66 per diluted share, in fiscal 1998.

Net income in the 1999 fourth quarter rose to $26.7 million, or $.63 per diluted share, compared with net income of $20.7 million, or $.52 per diluted share, in the 1998 quarter. Fourth-quarter sales totaled $999.1 million, up from sales of $873.8 million during the fiscal 1998 fourth quarter, due largely to the impact of acquisitions.

The record 1999 performance was the result of strong profitability at the Company's Meat Processing Group, which benefited from low hog prices that permitted sharp year-over-year improvement in fresh pork margins. This record was achieved despite a $58.6 million pretax loss incurred by the Hog Production Group as prices for live hogs fell to their lowest level in five decades.

Hog prices bottomed out in December 1998 and then began to rebound. Hog prices rose above break-even levels at the end of the fourth quarter, and hog production was well in the black in the month of May. Despite some near-term weakness in hog prices, the Company expects the Hog Production Group to be solidly profitable in the first quarter and to operate profitably for all of fiscal 2000.

“This year-to-year swing in hog production profitability will provide significant positive earnings momentum for the Company throughout the year,” said Joseph W. Luter, III, chairman and chief executive officer. “This once again illustrates the benefit of our vertically integrated structure, which gives us a more stable earnings base and eliminates the extreme cyclicality that characterizes the results of many companies in our industry. While we sustained large losses in hog production during fiscal 1999, we achieved record results in our processing operations. In the coming year, an expected decline in fresh pork profitability will be balanced by renewed profitability from hog production.”

Luter said other highlights included:

Just a few days after the close of fiscal 1999, Smithfield Foods became the world's largest hog producer with the acquisition of Carroll's Foods, Inc. and its affiliated companies, including Carroll's 49% interest in Carolina Turkeys, one of the nation's largest turkey processors.

The Company solidified its ranking as the world's largest hog processor. Smithfield Foods expanded internationally with acquisitions in Canada, France and Poland and, in May, announced an agreement in principle to form, through a 50%-owned joint venture, an integrated hog processing operation in Mexico. The Company produced a richer mix of value-added processed meats and fresh pork products as part of its long-term strategy to extract more value from its base of high-quality raw materials.

“We believe fiscal 2000 will be another record year for Smithfield Foods,” Luter said. “We have become a more important factor in hog production just as the market for live hogs has turned profitable once again. The richer mix of value-added products throughout the Company will add to our profitability. We continue to experience good growth for our flagship brand, Smithfield Lean Generation Pork, and for other high-quality fresh pork concepts that respond to the consumer desire for convenient, lean, healthy meals. We are also continuing to place heavy emphasis company-wide on increasing our processed meats business so that we can use substantially all of our bellies, hams and trimmings internally, rather than sell any of these high-quality raw materials to other processors.”

“Our international operations include companies with top-quality production facilities, outstanding products, significant market shares, and large growth potential,” Luter said. “We believe our international subsidiaries will play an important role in the Company's growth for decades to come.”

Smithfield Foods is the largest hog producer and pork processor in the world. The Company's brands include Smithfield Lean Generation Pork, Smithfield Premium, Gwaltney, John Morrell, Patrick Cudahy, Schneiders, Krakus, Lykes, Esskay, Kretschmar, Valleydale, Jamestown, Dinner Bell, Realean, Patrick's Pride, Great, Tobin's First Prize, Peyton's, Curly's, Ember Farms and others.

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