Divide Smithfield into 3 units, shareholder urges

Smithfield Foods Inc., the world’s largest hog producer, should consider splitting up into three businesses after the shares underperformed some competitors, Continental Grain Co. said Friday.

The three units would be hog production, fresh pork and packaged meats, and Smithfield’s international operations, Continental said in a letter released Thursday. The company should also start paying a dividend, add “several” new directors to its board and hire an investment bank to evaluate the proposals, said New York-based Continental, which holds a 5.8 percent stake in Smithfield and began investing in the company in 2007.

Smithfield will review the letter, the Smithfield, Va.-based company said Friday in a statement.

“It’s time for Smithfield to get serious about creating shareholder value,” Continental said in the filing. “This is an exciting time in the world of food and agribusiness.”

The company’s hog farms give Smithfield a competitive advantage and selling them would be a “big mistake,” Chief Executive Officer C. Larry Pope said Thursday in a response to a question on the company’s third-quarter earnings conference call.

Continental has “urged” Smithfield management and the board during the last seven years to focus on creating value for shareholders, who have seen “very little benefit” from the progress the company has made, according to the letter. During this time, Smithfield paid no cash dividends, while Tyson has cumulatively paid $429 million and Hormel has paid $728 million, Continental said.

Smithfield CEO Pope has received $36.7 million in total compensation during the past two years while Tyson CEO Donnie Smith has received $15.5 million, according to data compiled by Bloomberg.

Continental has two centuries of experience trading crops and investing in agriculture, according to its website. It was established in 1813 as a grain trading firm in Arlon, Belgium and moved its headquarters to New York in 1944.

Smithfield shares rose 4.5 percent to close Friday at $25.79.

“Our performance in the third quarter underscores success we are continuing to see in packaged meats,” Pope said Thursday on a conference call with analysts. “Looking forward, we anticipate that our packaged meats business will continue to deliver consistent growth with increased market share and broader distribution of our core brands.”

Packaged meat volumes will increase at least 2 percent to 3 percent in fiscal 2013 and Smithfield expects the trend to continue into fiscal 2014, Pope said.

Earnings from the fresh pork unit fell 31 percent and Smithfield’s hog-production business posted a loss in the third quarter of $15 a head, the company said. Smithfield said its hog unit will see losses per head in the “mid single digit range” for the full year.

“The big issue is stemming the loss in hog farms,” Tim Ramey, a Lake Oswego, Ore.-based analyst for D.A. Davidson & Co., who rates the shares a buy, said Friday. Hog farms will return to profitability later this calendar year partly because of lower corn prices, he said.

The shares also are rising because Smithfield said some customers are paying more for pork produced from hogs born to sows housed in pens, rather than gestation crates, said Heather Jones, a Richmond, Va.-based analyst for BB&T Capital Markets.

Business, Pages 29 on 03/09/2013

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