Check out symbol "PFOD". It is a case-ready meat company and Smithfield owns half the company.CSFB analyst says case ready is a revolution in the meat business. This PFOD could be the key to Smithfileds growth in the case ready market.
Good call on the new facility. My calculation makes this new facility almost five times what they have now. This company now has the matter to get large real fast. PFOD that is. What are your thoughts for a take out price on the half SFD does not own?
Thanks for your past thoughts.
Reply to rossi923: Reportedly, the new plant move is scheduled for March. It will be big enough to ensure rapid expansion. It has to be as more than one subsidiary company within SFD will be supplying the facility. Full ownership by SFD in this operation more than likely was set up when the joint venture was formed last year.
How profitable or stable do they need to be before SFD would take them out? Size probably matters. How big is this new facility and when are they moving in? The demand is very strong for case-ready production so they should be able to ramp up revenues rather quickly. The key here is to find out how big of a company they can become in this new faciltiy. Their first filing says they were incorporated in 7/1999 and they started production in 11/1999.
Regarding PFOD,look for SFD to buy the remaining 50% that they currently don't own when the operation becomes more stable and more profitable. They are currently moving into a new facility which is much larger and can handle more case ready business. The business is only about two years old as I heard it.
From their 10q of 09/30/2001
The Company has lost money continually since inception; however, the
loss in September, 2001 was significantly lower than the losses in both July and
August of 2001. The principal reason for the magnitude of the loss in July and
August is the Company's agreement to adopt a branded program for one of its
major customers that resulted in significant operational changes and processes
which have now been overcome.
Liquidity and Capital Resources
Until the closing of the Smithfield transactions in June 2001, the
Company had been chronically undercapitalized. Although the Company had a line
of credit with a small bank for a short time period, the line was supported by
personal guarantees of shareholders or officers. The Company's minimal equity
position of $379 at December 31, 2000 resulted from start-up expenses that were
funded through operations and private offerings of capital stock or convertible
debt. The Company currently has no convertible debt outstanding. On May 17,
2001, Smithfield loaned the Company $2.0 million, which the Company repaid on
the closing date of the Smithfield transactions, June 27, 2001.
Although the Company's liquidity problem prior to the closing of the
Smithfield transactions had not prevented the Company from filling orders (i.e.
by preventing the Company from purchasing necessary raw materials or paying its
workforce), it had caused the Company to seek capital infusions repeatedly since
commencement of business and has required the indulgence periodically of Company
Generally, the Company maintains an inventory of meat supplies using
the trade credit programs of its suppliers, which allow the Company to purchase
meat supplies with payment due within seven days. The Company's liquidity
difficulty prior to the closing of the Smithfield transactions was exacerbated
by the requirement that it pay for meat supplies sooner than it was able to get
paid by its customers, and because, in the case of the Company's largest
customer, its meat supplier was also the paying agent for the customer. This
paying agent deducted current meat purchases from prior amounts owed to the
Company by the customer before remitting payment to the Company.
By completing the Smithfield transactions, the Company addressed its
liquidity problem in two ways. First, the Company's immediate need for capital
was addressed by the $6 million purchase price paid by Smithfield for its equity
stake in the Company. Second, the Company received a $30 million line of credit
through Smithfield on terms that the Company had not been able to obtain before
establishing the relationship with Smithfield. The amounts which may be borrowed
on the line of credit are limited, however, to the Net Amount of Eligible
Accounts plus the Net Amount of Eligible Inventory (each as defined in the
applicable Credit Agreement) plus such other amounts as Smithfield may, in its
reasonable discretion, allow. The Smithfield transactions should allow the
Company to meet its capital needs for sufficient capital in the immediate
future. Management is cautiously optimistic that operations will improve in the
future; however, if they do not, there is no assurance that the Smithfield
transactions will provide sufficient capital for the Company to operate
successfully on a long-term basis.