Smithfield Foods Inc. announced Tuesday the company 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.
The company says the first half of 2020 was "a tale of two tapes": pre-pandemic and pandemic. Prior to the onset of COVID-19 in the United States, Smithfield delivered record results in the first quarter of 2020, which were 190% higher than 2019. However, the impact of the pandemic weighed heavily on the company's second quarter, pushing adjusted operating results 140% 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%, 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).
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: $195 million
- 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.
Facility-related costs: $125 million
- Adding personal protective equipment 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, Centers for Disease Control and Prevention and Occupational Safety and Health Administration guidance for meat and poultry processing workers and employers and CDC and Department of Labor guidance for agriculture workers and employers.
- Slowing lines and decreased efficiency, incurring downtime, changing production to meet shifting demand and downgrading and rendering product.
Community-related costs: $30 million
- Donating 40 million servings of protein to food banks nationwide.
Earlier Tuesday, the League of United Latin American Citizens 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 few organizations to commit time and resources to visiting its operations amid the pandemic.
"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," says Sindy Benavides, LULAC national chief executive officer.
"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," says Domingo Garcia, LULAC national president. "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," says Kenneth M. Sullivan, Smithfield president and chief executive officer.
Commenting on the company's ongoing approach to COVID-19, Sullivan says, "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."