June 1, 2006
By Barbara Young,
Graphics Courtesy of Smithfield Foods
Graphics Courtesy of Smithfield Foods
Smithfield Foods is forging ahead under the guidance of a changed executive-management team, a clearly defined organizational structure and a business expansion plan.
Joe Luter III, the man who defined Virginia-based Smithfield Foods for more than 30 years, is relinquishing his executive-management responsibilities, but not his vigilance over the Fortune 200 meat industry firm he brought back to life early in his career.
Continuing to serve as chairman of the Smithfield board of directors frees Luter to concentrate exclusively on his twin specialties: acquisitions and Smithfield’s long-term strategic development strategies.
“Joe Luter has revolutionized the United States pork industry, from introducing new genetics to building the largest pork-processing plant in the world,” reports Robert Burrus Jr., a Smithfield Foods director. “Joe was never afraid to take risks, but he was always mindful of his shareholders. Smithfield’s track record demonstrates his success. He is a leader and a visionary, and, on behalf of our shareholders, I can say we are grateful for his work.”
Over the years, Smithfield grew through insightful and shrewd acquisitions amounting to 53 companies in the past 25 years. Smithfield currently is in the final phase of its purchase of Sara Lee Corporation’s European meats business headquartered in The Netherlands. The acquisition promises to further strengthen Smithfield’s global business in Western Europe. Within the past few years, Smithfield acquired businesses in Poland, Romania, France and the United Kingdom.
This year, Smithfield acquired the bulk of the Cook’s ham business assets from ConAgra Foods Inc. Lincoln, Neb.-based Cook’s is a major producer of traditional and spiral sliced smoked bone-in hams, corned beef and other smoked meat products sold through supermarket chains and independent grocers throughout the United States and Canada.
“This is a significant step in our goal of utilizing internally all of the hams from the hogs that we process,” C. Larry Pope, Smithfield president and chief operating officer, explains. Pope is in line for the post of chief executive officer.
Smithfield’s portfolio includes business segments encompassing pork, beef, hog production and international operations, each comprising a number of subsidiaries (see “Smithfield Foods’ portfolio”). The company recently reported annual sales of $11.4 billion, compared with $11.2 billion in 2005. Its fourth-quarter 2006 earnings performance fell short against 2005 results, however, primarily attributed to depressed pork margins and lower live-hog prices linked to an oversupply of proteins in the U.S. marketplace. Moreover, higher energy costs whittled margins in the pork and beef segments.
Luter’s decision to step aside, leaving the company’s daily business affairs in the care of Pope coincides with other personnel changes at the corporate level and an organizational restructuring.
“Smithfield has had explosive growth, particularly in the United States. Mr. Luter has done a tremendous job of putting together a big organization,” Pope says. “We are not just growing up. We have arrived and [are] acting like a responsible company. We have good management and a good team of people. We should be respected by our customers and our communities. We take their opinions seriously, and we are sensitive to them. Smithfield is the new leader in the meat industry.”
Strategic growth paradigm
Like Luter, Pope, who joined Smithfield Foods as controller in 1980, is also a man of vision. His eyes focus on the company’s bottom line.
“We built an organization, now we need to hone it and sharpen it to deliver superior performance. We have too much overhead in this company, and our costs are a bit above what they should be. We endured this situation at the expense of growth. What is encouraging for me is there is a lot of financial performance for Smithfield buried inside the four walls of the organization.”
Smithfield with Pope as the chief executive officer is a company with a clear distinction between the corporation and its family of independent of operation companies (IOCs).
“We are intentionally decoupling the corporate organization from the IOCs, whose daily responsibilities are to process meat, call on customers and deliver their orders,” Pope explains. “The corporate organization sets broad policies and the direction of the company including financing and resolving legal issues. We have had blurred responsibilities in the past. I am trying to put a bright line between the two.”
Other recent personnel changes to the corporate management team include the retirement this year of Robert Urell, senior vice president, corporate engineering and environmental affairs, and a nine-year Smithfield veteran. His duties were divided and given to two executives. Dennis Treacy, the company’s environmental specialist, inherited total responsibility for environmental affairs as vice president, environmental, community and government affairs (see “Environmental Excellence”).
“Concerning environmental issues, compliance is the low-water point, and we are well above that,” Pope says. “We go beyond compliance and now are leading the industry. Our ISO 14001 accomplishments demonstrate the baseline of our operation. We are trying to set new rules and standards. We can do it with our resources and our commitment. This is ingrained in our organizational culture, and not just at the top.”
Henry Morris, the chief executive in charge of plant operations, is now responsible for oversight and management of Smithfield’s corporate engineering concerns, which involve policy, protocol, standardization and assessment of technology.
Linking plant operations with engineering empowers that new branch of the corporation to set standards governing the entire processing operation including buildings, grounds and production parameters.
“That means being in charge of setting corporate food-safety standards and upgrading facilities,” Pope explains. “These are minimum standards to guide IOCs. With such tight corporate rules that will be most helpful if any kind of issue arises, whether related to food safety or the environment.”
Morris, who returned to Smithfield two years ago after a hiatus to pursue other ventures, knows the value of standards for achieving production efficiency. He was on hand to ramp up production at Smithfield’s turnkey hog-processing facility in Tar Heel, Va., built on 160 acres in 1992. The Tar Heel plant remained the largest of Smithfield’s plants until an even bigger facility — in terms of square footage — came to the corporation with the 1995 acquisition of John Morrell & Co. The John Morrell plant in Cincinnati is a seven-story facility of about 1 million square feet and was built more than 100 years ago.
These days, Morris splits his time between overseeing U.S. production facilities and Smithfield’s international processing and farming operations.
“Our goal is to position Smithfield in a competitive advantage and minimize the overall costs in the operation,” Morris says. “Priorities include production uniformity and consistency, product quality, top-notch process controls and cost-effectiveness. We also are doing our best to automate where it makes sense.”
Concerning automation, Smithfield’s new $85 million ham-manufacturing plant in Kinston, N.C., operated by its Smithfield Packing Company subsidiary, is being touted as the most efficiently run cooked-ham plant in the industry, employing the newest technologies available and incorporating the industry’s highest food-safety standards.
Morris says a typical cooked-ham processing plant would require a production force of up to 50 people. “This plant will use three people because the system handles the product,” he says. “We also have special systems in place to control the operation beginning at raw-material receiving. Other control points target maximizing yields.”
Other features of the Kinston plant include:
Multiple halls engineered to handle annual capacity of about 50 million pounds of sliced products and various other deli products
Automated, European water cook-and-chill system
Filtered air-and-refrigeration systems emulating a hospital-clean environment
Employee traffic control and product-flow management ensuring highest food-safety standards
Integrated equipment automation and product-management control systems for tracking products throughout the operation
Utility systems targeting energy and resource conservation
“This new facility is designed to meet growing consumer demand in the foodservice, retail and deli channels of our business,” reports Richard Goodman, president, Smithfield Deli Group. “This plant will provide the opportunity for Smithfield to participate successfully in a highly competitive environment.”
Another recent change involving Smithfield Packing Company is the shift of its hog processing from the Smithfield South facility (formerly Smithfield Packing) to be divided between its Smithfield North (formerly Gwaltney) and Tar Heel, N.C., facilities.
Joe Luter IV, president of Smithfield Packing Company, said the cessation of processing at the Virginia birthplace of the company’s operation, was difficult but necessary.
“The decision is driven largely by hog availability and competitive industry conditions,” Luter said last year when the plan was announced. “The lack of hog supply is the direct result of the moratorium on hog farms in North Carolina and the de facto moratorium in Virginia.”
The one-time cost of discontinuing hog processing at Smithfield Packing was estimated at up to $10 million. Moreover, about 500,000 fewer hogs will be required for meat processing.
“By consolidating hog processing from three to two facilities, we will significantly improve our operating efficiency and utilization of assets,” reports Jere Null, senior vice president of Smithfield Packing. “We have plans to produce value-added pork products in the vacated space, enabling us to meet our customers’ continuing needs.”
Other facility upgrades in the domestic arena include an $81 million expansion project at Farmland Foods in Denison, Iowa, and the acquisition and expansion of a warehouse in Crete, Neb., costing $19 million. The Denison project adds capacity for smoked sausage and hot dog production. A $13.5 million expansion at Patrick Cudahy’s Golden Crisp Premium Foods’ facility in Sioux Center, Iowa, included three additional microwave bacon lines and a new wastewater-treatment plant. John Morrell & Co. adds space for ham, bacon and sausage products to its Sioux Falls, S.D., facility at a cost of $100 million.
“We are looking out across our organization to drive out excess costs that have occurred quite simply due to a concentration on growth,” Pope concludes. “The job now is focusing on fine-tuning the system and extracting the opportunities within this organization.” NP