EXHIBIT 99
SMITHFIELD FOODS NEWS RELEASE
[SMITHFIELD FOODS LOGO]
FOR MORE INFORMATION
FOR IMMEDIATE RELEASE
AARON D. TRUB
757-365-3000
SMITHFIELD FOODS REPORTS
RECORD THIRD QUARTER EARNINGS
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REACHES AGREEMENT IN PRINCIPLE TO ACQUIRE
CARROLL'S FOODS AND AFFILIATES
EARNINGS REPORT
Smithfield, Virginia, February 25, 1999 - Smithfield Foods, Inc.
(NASDAQ:SFDS) today reported record third quarter earnings in fiscal 1999. Net
income in the quarter ended January 31, 1999 increased to $55.0 million, or
$1.31 per diluted share, from $23.7 million, or $.60 per diluted share, in the
same quarter a year ago.
Net income in the first nine months of fiscal 1999 increased to $68.1
million, or $1.69 per diluted share, from net income of $32.7 million, or $.82
per diluted share, in the nine-month period a year ago. The net income in the
first nine months of fiscal 1998 included a nonrecurring charge of $12.6 million
($.32 per diluted share), which reflected penalties imposed against the Company
in a case brought by the U.S. Environmental Protection Agency. The judgement has
been appealed. Excluding the nonrecurring charge, the Company had net income of
$45.3 million, or $1.14 per diluted share, in the first nine months of fiscal
1998.
Sales for the third quarter of fiscal 1999 were $1.04 billion, down
from $1.10 billion in the same quarter of fiscal 1998. Sales for the first nine
months of fiscal 1999 were $2.78 billion, down from $2.99 billion in the same
nine-month period a year ago. The decrease in sales in both periods was due to
lower unit selling prices for the Company products, reflecting substantially
lower hog and raw material prices which were not entirely offset by increased
unit sales volume in each period.
Smithfield Foods' fiscal 1999 third quarter was the best quarter in the
Company's history. The quarter's excellent results were fueled by a substantial
increase in the profitability of the Company's Meat Processing Group. The Group,
benefiting from the lowest hog prices in some five decades, experienced a sharp
improvement in margins and profitability in its fresh pork operations.
The substantial improvement in the performance of the Meat Processing
Group more than compensated for sizeable losses suffered in the quarter by the
Company's Hog Production Group. The level of hog prices which provided the
opportunity for substantial improvement in the performance of the Meat
Processing Group had the opposite effect on the performance of the Hog
Production Group.
"The counter-cyclical effects of meat processing and hog production
were clearly evident in our third quarter," Joseph W. Luter, III, chairman and
chief executive officer of Smithfield Foods, stated. Hog prices have rebounded
sharply from the lows reached in December, and while this rebound will, to some
extent, cut into our fresh pork margins, it will, on the other hand, reduce our
losses from hog production.
"Our vertical integration strategy clearly demonstrates that it
insulates the Company from violently cyclical swings in earnings and allows the
Company to meet or exceed prior year's earnings' levels on a consistent basis,"
Luter said.
The Company's International Group, which currently consists of Societe
Bretonne de Salaisons (SBS) in France and Schneider Corporation in Canada,
exceeded expectations in the third quarter and was immediately accretive to
earnings.
"We look forward to a strong fourth quarter and the third consecutive
year of record earnings for Smithfield Foods," Luter stated. "Smithfield Foods
has established itself as the largest pork processor in the United States and is
now pursuing a global growth strategy. We have developed an exceptionally strong
base of business in the United States that will serve as a springboard for
future growth and consistency in earnings, both here and abroad," Luter said.
ACQUISITION OF CARROLL'S FOODS
The Company has reached an agreement in principle to acquire all of the
capital stock of Carroll's Foods, Inc. and its affiliated companies, which
include its ownership interests in Smithfield-Carroll's and Circle Four, for
approximately $500 million, consisting of 3.3 million shares of Smithfield Foods
common stock, $178 million in cash, and the assumption of approximately $216
million of debt.
Carroll's Foods is the second largest hog production company in the
U.S. and is headquartered in Warsaw, North Carolina. Smithfield-Carroll's and
Circle Four are hog production arrangements with Smithfield Foods.
The acquisition of Carroll's Foods and its ownership interests in
Smithfield-Carroll's and Circle Four will increase Smithfield Foods' level of
vertical integration to approximately 27 percent from its present level of
approximately 11 percent and make Smithfield Foods the largest hog production
company in the world. Smithfield Foods is the largest pork processing company in
the world, processing approximately 19 million hogs per year.
"We have had a strategic alliance with Carroll's Foods for many years
and are delighted that they will now become a full-fledged member of the
Smithfield family," Joseph W. Luter, III, chairman and chief executive officer
of Smithfield Foods, stated.
With this acquisition, the Company has taken a major step toward
achieving its long-term strategic goal of becoming a more vertically integrated
company. "This acquisition will accomplish in one transaction what the Company
had otherwise hoped to achieve in added hog production over the next five to 10
years, assuming such new production could even be added given the current
political and environmental climate in existence today," Luter said.
Smithfield Foods intends to retain the Carroll's Foods name and operate
Brown's of Carolina and its other hog production interests under that name.
Luter said that the Company does not anticipate any major changes in Carroll's
Foods' management team but does expect to take advantage of synergies between
its current hog production operations and Carroll's Foods' operations.
"Given our perception that the trend in hog prices over the next 12 to
24 months will be up, we believe that this acquisition will be accretive to
Smithfield Foods' earnings in fiscal 2000 and will substantially enhance its
earnings in fiscal 2001," Luter stated.
The acquisition is subject to, among other things, the successful
negotiation of a definitive acquisition agreement, the satisfactory completion
of an ongoing due diligence investigation of Carroll's Foods' businesses, any
applicable regulatory filings and reviews, and the approval of the Company's
Board of Directors.
The Company expects to close this transaction in May.
FORWARD LOOKING STATEMENT
This news release may contain "forward-looking" information within the
meaning of the federal securities laws. The forward-looking information may
include, among other information, statements concerning Smithfield Foods'
outlook for the future. There may also be other statements of beliefs, future
plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. The forward-looking
information and statements in this news release are subject to risks and
uncertainties, including availability and prices of live hogs and raw materials,
product pricing, competitive environment and related market conditions,
operating efficiencies, access to capital and actions of governments, that could
cause actual results to differ materially from those expressed in or implied by
the information or statements.
Smithfield Foods is the largest vertically integrated producer and
marketer of fresh pork and processed meats in the United States. The Company's
brands include Smithfield Lean Generation Pork, Smithfield Premium, Gwaltney,
Patrick Cudahy, John Morrell, Lykes, Esskay, Kretschmar, Valleydale, Jamestown,
Dinner Bell, Realean, Patrick's Pride, Great, Tobin's First Prize, Peyton's,
Curly's, Ember Farms and others.
* * * * *
CONSOLIDATED STATEMENTS OF INCOME
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
13 Weeks Ended 14 Weeks Ended 39 Weeks Ended 40 Weeks Ended
(IN THOUSANDS, EXCEPT PER SHARE DATA) January 31, 1999 February 1, 1998 January 31, 1999 February 1, 1998
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Sales $ 1,035,728 $1,095,999 $ 2,775,929 $ 2,993,661
Cost of sales 834,524 979,408 2,387,415 2,705,972
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Gross profit 201,204 116,591 388,514 287,689
Selling, general and administrative expenses 88,780 64,157 212,751 166,526
Depreciation expense 17,740 11,018 44,694 31,086
Interest expense 10,553 8,424 31,175 23,827
Minority interest (765) (72) (3,696) 1,872
Nonrecurring charge 1 - - - 12,600
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Income before income taxes 84,896 33,064 103,590 51,778
Income taxes 29,916 9,345 35,454 19,052
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Net income $ 54,980 $ 23,719 $ 68,136 $ 32,726
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Net income per common share:
Basic $ 1.35 $ .63 $ 1.75 $ .87
Diluted 1.31 .60 1.69 .82
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Average common shares outstanding:
Basic 40,856 37,537 38,889 37,531
Diluted 41,836 39,781 40,376 39,687
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1 Results for the 40 weeks ended February 1, 1998 include a nonrecurring
charge of $12.6 million ($.32 per diluted share) related to civil
penalties in an environmental case.
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