Smithfield Foods' Adjusted Operating Results Swing to Loss in Second Quarter Amid COVID-19 Pandemic

Company Spends $350 Million to Protect Team Members and Food Supply; COVID-19 Related Expenses Push Adjusted Operating Results into Negative Territory

News provided by

Smithfield Foods, Inc.

Aug 11, 2020, 14:05 ET

SMITHFIELD, Va., Aug. 11, 2020 /PRNewswire/ -- Smithfield Foods, Inc. announced today that it has spent $350 million to protect its team members and the American food supply during the COVID-19 pandemic, causing adjusted operating results to swing to a loss in the second quarter of 2020.

At Smithfield, the first half of 2020 was "a tale of two tapes": pre-pandemic and pandemic. Prior to the onset of COVID-19 in the U.S., Smithfield delivered record results in the first quarter of 2020, which were 190 percent higher than 2019. However, the impact of the pandemic weighed heavily on the company's second quarter, pushing adjusted operating results 140 percent below a year ago to a $72 million loss. Even when factoring in a benefit from risk management activities entered into before the pandemic, second quarter results were positive, but remained 54 percent, or $119 million, below a year ago.

Following are the company's operating results for the second quarter of 2020 (U.S. GAAP in millions):

	Three Months Ended
	June 28, 2020	June 30, 2019

Adjusted operating results (before risk management and other activities)	(72)	180
Risk management and other activities	174	41
Operating results - as reported	102	221

Smithfield incurred both direct and indirect incremental expenses related to COVID-19 totaling $350 million during the second quarter. This included $195 million in people-related costs, $125 million in facility-related costs and $30 million in community-related costs, as detailed below:

People-related costs

Fully compensating over 22,000 employees to stay home at various points during the pandemic.
Expanding employee benefits and removing all barriers in health plans.
Adding "Responsibility" pay premiums.
Hiring private healthcare providers to supply free, on-site, on-demand COVID-19 testing to all employees.

$195
million

Facility-related costs

Adding personal protective equipment (PPE) and abundant hand sanitizing stations, installing mass thermal scanning systems and physical barriers, among other protective measures.
Adopting a series of stringent and detailed processes, protocols and protective measures that follow, and many cases exceed, CDC and OSHA guidance for Meat and Poultry Processing Workers and Employers and CDC and DOL guidance for Agriculture Workers and Employers.
Slowing lines and decreased efficiency, incurring downtime, changing production to meet shifting demand and downgrading and rendering product.

$125
million

Community-related costs

Donating 40 million servings of protein to food banks nationwide.

$30
million

Earlier today, the League of United Latin American Citizens (LULAC) issued a statement praising Smithfield's COVID-19 protective measures, which they witnessed firsthand during a facility visit last month. The company commended LULAC for being one of the very few organizations to commit time and resources to visiting its operations amid the pandemic. Sindy Benavides, National Chief Executive Officer, said, "Their investment in free onsite testing and paid sick leave for all of its employees set Smithfield Foods apart from other meatpacking companies. We encourage every company in the industry to follow suit."

Domingo Garcia, National President, shared that, "LULAC is impressed with the strong commitment backed by their substantial investment that Smithfield Foods is making in the company's determination to ensure worker safety. COVID-19 is an elusive enemy and it is clear Smithfield understands fighting it is neither easy nor without costs. However, workers safety must always come first. LULAC believes even if one life that can be saved, must be saved with new safety measures. This is why we believe strongly that Smithfield Foods is on the right track. It is the only company we have visited thus far of America's major protein producers, where workers can get free on-site testing for COVID-19. This is clearly an important step that is putting into action the company's commitment to help us protect workers and stop the spread of a deadly health threat our country is facing. Worker safety, while a significant and costly process, will yield immeasurable benefits for years to come when our nation's consumers look at those who chose to put prevention above profit, and doing everything they could to save American lives. Smithfield Foods is the kind of partner with which LULAC will stand as long as it continues to move in the right direction."

Regarding the back half of 2020, particularly the fourth quarter, the company offered the following outlook: "Going forward, we expect performance to rebound in the fall, as our COVID-19 related costs, some of which were one-time or short-term in nature, are declining," said Kenneth M. Sullivan, president and chief executive officer, for Smithfield.

Commenting on the company's ongoing approach to COVID-19, he concluded, "Throughout the pandemic, we have had two priorities, and two priorities only. First, keep our people healthy and safe. And, second, keep our nation fed. These remain our sole priorities. We thank our Smithfield Family for working tirelessly to keep food on America's tables."

About Smithfield Foods, Inc.
Headquartered in Smithfield, Va. since 1936, Smithfield Foods, Inc. is an American food company with agricultural roots and a global reach. Our 40,000 U.S. employees are dedicated to producing "Good food. Responsibly.^®" and have made us one of the world's leading vertically integrated protein companies. We have pioneered sustainability standards for more than two decades, including many industry firsts, such as our ambitious commitment to cut our carbon impact by 25 percent by 2025. We believe in the power of protein to end food insecurity and have donated hundreds of millions of food servings to our neighbors in need. Smithfield boasts a portfolio of high-quality iconic brands, such as Smithfield^®, Eckrich^® and Nathan's Famous^®, among many others. For more information, visit www.smithfieldfoods.com, and connect with us on Facebook, Twitter, LinkedIn and Instagram.