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Struggling Smithfield ditches 1,800 jobs

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Smithfield Foods, the world's biggest pig processor, is to axe six plants and 1,800 jobs, and turn its back on acquisitions, in a drive to shore up its margins.

The group said the restructuring, which will reduce to three from seven its operating units, would make it a "stronger, more competitive" company. The economic crisis has already forced many rival meat companies, including Pilgrim's Pride, into drastic cutbacks.

Smithfield's revamp places a question mark over 3,000 posts, nearly half at a packing factory in Virginia, although the company said it plans to offer transfers to many staff.

"Layoffs and plant closing are difficult but necessary decisions," Larry Pope, the Smithfield chief executive, said.

'Financial flexibility'

The group, whose operating costs are running at a rate of more than $800m a year, expects the cuts to save $125m annually by 2011, after expenses. To achieve the savings, Smithfield expects to swallow $115m in charges, on a pre-tax basis, as well as spending $53m on rationalising its plants.

The move follows talks with lenders including Rabobank, the Dutch bank, and France's Calyon to loosen the terms surrounding debt facilities of $1.3bn and E300m. Lenders agreed that Smithfield's debt be allowed to rise to as much as 74% of group's underlying earnings before triggering covenants, as opposed to 33% in the original agreement, in return for extra collateral and a higher interest rate.

"These amendments... provide the company with sufficient time and financial flexibility to bridge the current hog cycle and uncertain economic environment," Mr Pope said. "This action should remove any questions about the [group's] financial strength. We have eliminated a major distraction."

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While Smithfield's food sales have held up reasonably well during the economic crisis, with low-end products such as hot dogs taking up some of the slack from premium brands, the group's hog rearing operations have been hurt by rising prices of feed.

The group in December reported a second quarter loss of $30.0m from continuing operations compared with an after-tax profit of $23.4m a year before.

Smithfield shares stood $0.73, or 7.6%, lower at $8.84 in afternoon trade in New York.

By Mike Verdin

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