Smithfield Foods Inc (SFD) 2015 Q4 法說會逐字稿

Welcome to the Smithfield Foods' 2015 fourth-quarter and year-end conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Ms. Keira Lombardo. Please, go ahead.

Good morning. Thank you for joining us today for Smithfield Foods' conference call for the fourth quarter and full year 2015. Joining me on our call today is Ken Sullivan, President and Chief Executive Officer and Glenn Nunziata, Chief Financial Officer. We would like to caution you that in today's call there may be forward-looking statements within the meaning of Federal Securities laws. In light of the risks and uncertainties involved, we encourage you to read the forward-looking information section of the Company's 10-K for calendar year 2015. You can access the 10-K on our website at SmithfieldFoods.com. I'll now turn the call over to Ken. Ken?

Good morning, everybody. Thank you for dialing in. It's my pleasure to join you this morning. You should know, we filed our Form 10-K just a few hours ago. The 10-K contains a wealth of information about our results for 2015. As Keira said, Glenn Nunziata, our Chief Financial Officer, joins me on the call today. Later in the call, Glenn will provide a rundown of all the numbers. Before he does that though, I will recap at a very high level the major themes for 2015.

2015 was a year of substantial organizational and cultural change for Smithfield. Yet, despite all the change -- more accurately, precisely because of the changes, we recorded the second-best January through December in our Company's history. Let me put a few numbers around that to put things into perspective. In 2014, Smithfield's best year ever -- that was two years ago, we booked $932 million in operating profits. But that included $344 million in PED-fueled hog farm profits. Without those cyclical hog farm profits, we made approximately $587 million in our fresh, packaged and international divisions. In 2015, in contrast, we made nearly $775 million in those same divisions. That's an increase of nearly $188 million year-over-year. Again, that's without the cyclicality of the hog farms impacting the numbers.

To what do we attribute the improved performance? Well, it's hard to reduce it to any singular reason, but in addition to markets, two words come immediately to mind: One Smithfield. Let me explain, on this call almost exactly a year ago, we announced our new organization structure, what we call the One Smithfield structure. To remind you, we eliminated all the independent operating companies we spent nearly 30 years accumulating and combined all our worldwide operations into four cohesive operating divisions. We abandoned our old IOC model, which tended to foster silos and sub-optimation, in favor of putting all our segment operations under a singular common management control.

As I've said many times before, the IOC model served Smithfield well for a lot of years, but it had run its course. Change was essential for us to realize the full potential of our global organization. So in March of 2015, we pulled the trigger on One Smithfield. We restructured our entire Company. I said at the time, I thought One Smithfield would be a real catalyst for profit improvement, as we would be much better positioned to: one, optimize our sprawling manufacturing platform. If you don't know, we've got over 40 plants in the US and another 10 plus internationally.

Two, take costs out of our logistics and distribution system. Three, better manage the front end of our sales process. Four, allow us to manage the crown jewel, our brand portfolio, with a more cohesive strategy. That's a nearly verbatim quote from last year's call describing One Smithfield. I am pleased to report to you today, One Smithfield has indeed been a catalyst for earnings improvement. I would suggest to you that a good portion of the $188 million year-over-year operating profit improvement, ex hog farms, is attributable to the synergies we have realized under One Smithfield.

Let me give you a few highlights to illustrate the point. In packaged meats, our operating profit reached all-time highs, with per-unit profits also reaching new levels for the full year. We had a 9.5% EBIT margin and solid double-digit EBITDA margins in that division. Our volume growth was 7.1%; was exceptional. We saw broad-based market share expansion across numerous brands and product categories. It was so strong Smithfield was the second fastest growing top 25 food Company, not just protein Company, but food Company according to IRI data; the second fastest growing.

Our Smithfield branded retail bacon volume was up double-digits. Our Eckrich smoked sausage gained record high distribution, including a 72% ACV and hit an all-time high market share, putting it within shouting distance of becoming the number one smoked sausage brand nationally. Our Eckrich deli brand was the fastest-growing deli brand in the US among the top established brands, exceeding category growth by more than three times.

Nathan's market share climbed to nearly 40% in the premium beef hot dog category. Its distribution numbers are through the roof at 91% ACV, both all-time highs for the brand. Our Kretschmar deli brand continued to record impressive volume gain. Virtually everywhere I look on our brand scorecard, I see green ink in sales, volume, and margin growth. There are more individual successes in packaged meats, but I will limit it to these examples, as my purpose is simply to give you a sense of our forward momentum that we generated from One Smithfield.

Of course, the benefits of One Smithfield are not restricted to the packaged division. Let me provide a few highlights about our fresh pork business. In fresh pork, our retail channel sales grew double-digits, while improving margins by more than 20%. We grew our branded fresh pork sales by double-digits, delivering almost 500 million pounds of Smithfield retail branded pork. Our Smithfield marinated fresh pork reached record-high distribution and captured leading dollar shares and volume share of the marinated fresh pork category.

We grew our Smithfield prime fresh pork by strong double-digits. We saw strong export sales volume growth. We're up 7.6% for the year, led by significant increases in exports to China, which were up double-digits, nearly 50%, as we continued to leverage our WH Group trading platform. All of this in a year in which we consolidated our entire fresh pork brand portfolio under one brand, Smithfield. We did this without losing a single customer.

Clearly, the majority of our initiatives from the One Smithfield project benefit the domestic meat businesses, both packaged and fresh. That's where most of the improvement came in 2015. Having said that, I'd be remiss if I didn't highlight the forward momentum in our international business as well. In the international division, currency translation losses from the stronger dollar obfuscated some of the underlining gains. For example, we saw both top and bottom-line growth in our packaged meats business on a currency neutral basis.

Sales up nearly 5%, volume up 5%, and operating margins up over 40%. We had significant volume and margin gains in core categories, like hot dogs, smoked muscles, cooked ham, canned meat, the list goes on. We also had strong double-digit volume growth in our Krakus and Berlinki brands. Berlinki hot dogs, by the way, have the -- incidentally have a strong number one market position in Poland with nearly a 36% market share. Also in Poland, our food service business was up strong double-digits. Our export volume was up double-digits, both in packaged meats. In Romania, our volume-added fresh pork increased double-digits. Our fresh pork export sales in Romania were also up double-digits.

On the hog farms, finally, of course our domestic hog farms continued to be an important differentiator for us. While the cyclicality of the financial results from live production can be challenging, let's use the word challenging, to manage, there is no doubt we have one of the finest live production teams in the world. They provide us with differentiated programs like group housed pork. I am proud to report that we transitioned 81.8% of sows on Company-owned farms in the United States to group housing systems. We are the clear leader in this initiative. We expect the marketplace will begin to assign a premium to group housed pork, as the pledges that so many retailers and food service providers made in this regard come to maturity.

So you see, our One Smithfield initiative is paying dividends already, particularly in our domestic meat operations. The forward momentum is undeniable. When we look back on Smithfield five years from now, I think we'll see 2015 as a clear demarcation point for the Company. 2015 will be remembered as the year the largest pork Company in the world got its organizational structure right, combined all the acquisitions it spent more than two decades accumulating into a singular, cohesive operating Company. 2015 will be remembered as the year Smithfield finally harnessed the power of its brands and the year we emerged as a powerful market force that could no longer be ignored in CPG circles.

I'm also hoping it will be remembered as the year market observers finally sat up, took notice that Smithfield has a world class CPG Company embedded inside it, with more than $7 billion in annual sales and more than $750 million of EBITDA. Apply a fair multiple to that and you will get a very, very big number. There is no doubt 2015 will be remembered as a seminal year in our history.

But here is the good news, we're not done. We have many more benefits to squeeze out of One Smithfield. There are four planks to One Smithfield: sales, brands or marketing, manufacturing and logistics. The benefits we've seen to date are mostly attributable to the sales plan. Combining our sales organizations into a cohesive team has clearly paid dividends. Over the next 12 to 24 months, I expect we'll begin to see meaningful improvements in our transportation and logistics costs, as well as reductions in our manufacturing costs.

We're in the midst of implementing a one SAP system, in which we're combining our separate, disparate, legacy systems into one powerful, domestic platform that will provide us the information we need to fully realize the benefits of these other planks and ultimately allow us to serve our customers better. We'll go live on that system approximately 12 months from now. So there is more to come from One Smithfield.

Finally, we're not standing still. In the last three months, I've also made a number of additional refinements to our organization structure. Each of these changes I've made is designed to further optimize our One Smithfield team and to promote growth. Here are four examples.

I've asked Executive Vice President, Dhamu Thamodaran, to accept additional responsibility for developing strategies to optimize our vertically integrated model. In his expanded role, Dhamu will work closely with all four of our operating divisions and our export group to formulate and implement strategies that maximize returns from our vertically integrated system. Dhamu, of course, is an industry veteran with 31 plus years of experience. His knowledge and understanding of world agricultural markets, macro economics, the pork value chain, make him uniquely qualified to assume this new role.

Second, I've asked Will Brunt, already our Chief Innovation Officer and a talented executive to expand his innovation efforts enterprise-wide. He will promote, encourage, empower and spotlight innovation in every corner, process and area of our business. In this expanded role, he will ensure innovation is part of our DNA, fostering an environment that encourages us to work smarter and serve our customers better. For world-class CPG companies, having a culture of innovation isn't just nice to have, it is a prerequisite.

Third, I've asked Joe Weber to accept the position of Executive Vice President of Business Development for Smithfield Foods. In this new role, Joe will be responsible for identifying, developing and executing strategies to promote and manage the Company's growth. This will include identifying and creating new and alternative revenue streams for Smithfield, as well as evaluating the multitude of new business opportunities that present themselves to us on a regular basis. Joe is a seasoned senior executive with extensive knowledge of the protein industry and a background in agriculture. He has a unique ability to see the big picture. I know he will help raise Smithfield to great heights, both here in the US and internationally.

Finally, I've asked Chuck Gitkin, Senior Vice President of Brands and Marketing to assume all domestic marketing and brand development activities for the packaged division. Chuck's an innovative, outstanding marketing executive with a proven track record of success. I'm supremely confident in his ability and believe he will propel our brands to new heights under our newly united One Smithfield domestic marketing organization. I am convinced all these appointments and organizational changes will yield tangible benefits going forward.

In closing, I'd repeat again that 2015 was a solid year financially for Smithfield Foods and a remarkable year in terms of the changes we absorbed. We proved again, we are $1 billion plus EBITDA Company, even in a year in which our earnings on the hog farms declined nearly $325 million. With that, I will turn it over to Glenn Nunziata, who can run you through the numbers.

Thanks, Ken. Good morning to all of you listening on the call. Before I get started, I wanted to remind you all that our full 2015 financials are available in our Form 10-K, which was filed earlier this morning. Regarding this discussion, however, I'm going to focus on the highlights. Then we'll open the line up for questions. Please keep in mind that all the comparisons in my remarks are to the same period last year.

On that note, the full-year 2015 consisted of 53 weeks and 2014 consisted of 52 weeks. Likewise, the fourth quarter in 2015 included 14 weeks and that compares to 13 weeks in the same period in 2014. For all the WH Group analysts on the call, please note that our results are represented on an US GAAP basis, for that reason, the results and the presentation of those results may differ from WH Group's IFRS presentation. With all that said, let's jump into the numbers.

Our fourth-quarter sales totaled $3.9 billion compared to last year's $4.1 billion. Year-to-date sales were $14.4 billion compared to $15 billion in 2014. Sales dollars decreased across all segments during both the quarter-to-date and year-to-date periods, with the exception of our packaged meat sales dollars in the fourth quarter. Volumes, however, have increased across the board. Every segment of our business experienced lower price levels this year compared to 2014, up against extraordinarily high price levels seen last year.

In addition, the strong US dollar affected the measurement of our sales in our international segment. Currency negatively affected sales by approximately $56 million for the fourth quarter and $261 million for the full year. We can point to currency for more than 40% of our overall decrease in year-to-date consolidated sales. The bottom line on sales can be summarized as higher volumes and lower unit values, especially considering the extraordinarily high prices in 2014 and then some headwind from the strong US dollar.

Let's turn to operating profit, our fourth-quarter operating profits totaled $265.8 million compared to last year's $224.9 million. Operating profit for the full year 2015 totaled $793.8 million compared to last year's record $931.6 million. That's a decline of $137.8 million. To explain the year-over-year decline, you can look directly at our hog production segment. The decrease in that segment more than offset the gains in our fresh pork and packaged meats businesses.

The packaged meat segment led the way once again, with record year-to-date profits totaling $673.3 million. That's compared to $459.8 million last year. These results are consistent with our focus on and our investment in our consumer packaged goods aspects of our business. In 2015, our challenge was in the commodity dependent areas of our business, in particular the hog production side.

Higher supplies in the market, both in terms of animals and meat, has made keeping pace with last year's record results challenging. The impact of these challenges can be seen in our pretax profits, which were $230.5 million in the fourth quarter versus $185.8 million last year. On a full-year basis, our pretax profits totaled $660.7 million after adjusting for the debt extinguishment charge we booked in the first quarter. This compares to $773.1 million of pretax profits last year.

We know these results are down from last year's record level, but let me provide some color. Our 2015 results represent the second-best January through December period in Smithfield's history. In evaluating our results, it's important to remember just how good 2014 was. Considering the market dynamics we face today, including increased supply, which resulted in sharply lower hog and pork prices, combined with challenging foreign currency exchange movements, we are satisfied with this performance.

The results demonstrate that our branded packaged meat strategy is working. The strength of that business has offset some of the market pressures in our other segments. Net income for Q4 totaled $167.8 million. That's up from the $152.6 million we earned in the prior year. For the full year 2015, net income totaled $452.3 million. That compares to last year's record of $556.1 million.

To recap on consolidated results and also build on what Ken mentioned earlier, I'd like to reiterate that when we look at our 2015 results, after we carve out the live production business that is most prone to market volatility, we saw an increase in operating profit of approximately $188 million. All things considered, those are very solid results. We believe this performance can be attributed to our management team executing under our One Smithfield vision. Operating as a consolidated streamlined organization, we continue to be laser focused on improving our competitive cost structure and aligning our Company to better serve our customers and our consumer's needs.

Let me turn now to segment performance. Our packaged meat segment had another solid quarter. Operating profits totaled $212.2 million. That was up 64% from the prior year. For the year, operating profits totaled $673.3 million compared to $459.8 million last year. That's a 46% improvement. Volume is up nicely year over year as well. As we've repeatedly said, the ongoing development of our packaged meats business continues to be an exciting growth prospect for us.

Our fresh pork segment had a remarkable Q4, with operating profits at $145.1 million as compared to $20.6 million in 2014. This fourth-quarter increase of $124.5 million in and of itself exceeded our fresh pork results for all of 2014. Fresh pork year-to-date operating profit was $177.3 million compared to last year's $96.7 million. The story behind fresh pork for Q4 was simple; it's lower pig costs combined with a 16% volume increase. The increase in market hogs drove down animal costs; although, meat prices also declined, they didn't drop as much as the raw material cost did.

Let's discuss hog production. Q4 results reflected a $60.1 million loss compared to operating income of $66.1 million last year. Year-to-date we were profitable by $19.7 million. But that's nowhere near last year's $344.2 million profit, which was driven by the supply issues caused by PED. Once again, our risk management programs continue to be successful and contributed to our overall results in 2015.

Looking at international. Q4 operating profits totaled $20.1 million compared to $44.7 million the previous year. Full-year results reflect profits of $66.1 million in 2015 compared to $155.8 million in 2014. Lower pig prices in Europe and in Mexico have slowed earnings in that segment.

In terms of financing costs, 2015 interest expense was $133.8 million. That's compared to $159.4 million in the previous year. This decrease reflects our debt reduction efforts, which I'll discuss in a moment. EBITDA in 2015 was just over $1 billion.

We are proud of our current financial position and our extremely healthy balance sheet. Our leverage ratios remain at around two times. Our net debt to capital ratio is around 25%. We are covering interest well over seven times. At the end of 2015, outstanding gross debt was only $2.3 billion. During 2015, we reduced this debt by just over $438 million. We have repaid more than $1.1 billion since the merger with WH Group. We have nearly $2.3 billion of global liquidity, which included our cash at the end of December. Throughout 2015 and into the first quarter of 2016, our liquidity is ample and remains a non-issue. Finally, there are no debt covenant issues.

I also wanted touch quickly on capital expenditures. CapEx for 2015 totaled $375 million. Our capital plan for 2016 is $350 million. To put that in perspective, depreciation and amortization expense was $234 million in 2015. We expect it to be about the same next year. This concludes our recap of 2015 and my prepared remarks. We can definitely take some questions now.

Thanks, Glenn. Operator, please open the line for questions.

(Operator Instructions)

Bryan Hunt, Wells Fargo Securities.

First of all, I would like to ask a question about your financial strategy going forward. Considering you've achieved such, I guess, lofty expectations with regards to debt reduction since the merger with WH Group, and it seems like earnings are on track to have another very good year in 2016, could you rank what your plans are for free cash flow between further debt reduction, maybe sending dividends up to WH Group for their debt reduction and/or M&A?

Yes. I can handle that. I think you sort of hit on them already. Clearly, as an Organization, the WH Group, which we are a part of -- we're conservative. It will continue to be debt reduction.

As you may know, we don't have any real meaningful maturities at Smithfield in 2016. I think our first bond maturity's in 2017 -- the summer of 2017.

But there is debt at the WH level. We will be an active participant in trying to take that debt down.

Obviously, investing in the Business is a high priority for us. If you didn't know it, our depreciation runs about $230 million, call it.

Last year, we spent upwards of $380 million plus on CapEx. I expect that we'll spend another $350 million approximately this year.

So, it's certainly investing in the Business. It's continuing to pay down debt Groupwide, if you will, which would require a dividend to WH Group.

When I look at your $350 million of CapEx for 2016, is there any way you can break that up into major projects for us, or within certain divisions?

Major projects would be a difficult one. If you could see our CapEx list, it's over 1,000 projects long. So, I'm not going to delve into specific projects, other than to say, we do have some expansion projects on the books here.

If you think about our capital allocation, the highest allocation goes to our Packaged Meats division. That's maybe no surprise to you. It's clearly the division that has the highest return on capital.

That is followed closely by our Fresh Pork division, where we think we have real opportunity to improve our automation and, therefore, our margins in that business. Third, I would tell you that our hog farms in which we've committed to the group housing project continue to absorb some capital there. I would tell you, it's not all -- we're just doing a group housing thing; we are renovating all our farms as we do that. Finally, on the international scale, we are investing sort of twice what the depreciation is in our international businesses because we do think the growth potential is very high there.

We could probably get you, after the call, a further allocation of it, if you will. I would suggest to you though that the easiest thing to do is to look in the 10-K. I think we've got, if I'm not mistaken, in the segment footnote some articulation of what the capital is by segment. I would suggest to you -- wouldn't expect it to be dramatically different in 2016 than it was in 2015.

And two more quick ones -- one, when you look at the domestic industry, I think there's been three announcements on significant hog packing facilities in the US that will open by the end of 2017. Can you give us maybe your impression or any concerns that the industry may be overexpanding at this point, after running extremely tight, I guess, late last year?

Well, you use the number three. I'd use the number five. I am aware of at least five planned plants; at least three of which, I think, have shovels in the ground. Two, anyway, have shovels in the ground; a third one is kind of a renovation of a facility.

But it is absolutely true that there will be more capacity coming online over the next 24 months. I think the $64,000 question is going to be what do producers do?

Will we expand enough to fill those plants, or will there be real competition for hogs? I think in the short term, it's likely to be some competition for hogs. But I would also tell you that if you look who's behind some of these new plants, there is a fair amount of producers behind those plants. I would tell you it is -- an already competitive business is about to get even more competitive.

All right. Then my last question: Could you talk about raising costs in 2015? What they were, and maybe what the outlook is for 2016? Just, back of the envelope, it looks like hog raising could be profitable -- anyway, I appreciate all your time. Thanks.

Glenn, you want to give him sort of a range of what our raising cost is in 2015?

Sure. In 2015, our actual raising costs were in that $57 to $60 range per hundredweight. In 2016 -- you mentioned profitable -- I've seen this go up and down quite a bit, Bryan, to be honest with you. We're seeing those raising costs fluctuate. I've seen numbers around $53; I'm seeing them as high as $56.

Again, I appreciate your time. Best of luck.

Carla Casella, JPMorgan.

One clarification on Bryan's first line of questioning on the debt structure: So, it sounds like you're not looking to pay down more debt at the Smithfield level this year. It's more likely that free cash flow goes to pay down debt at the WH Group.

Would you also increase leverage at Smithfield to do so? Or do you want to keep your leverage at the current level? Or do you have a leverage target?

Carla -- go ahead, Ken.

We don't think we need to increase leverage to accomplish the goals in the capital plan for 2016. So, it's not really a question of increasing leverage.

The other thing that I probably should have highlighted though, Carla, in the previous answer was that we have been pretty active in funding our pension plan. Over the last two years, we've made, Glenn, I think it's about $400 million in pension contributions --

Right.

-- over the last couple of years. So, we've been pretty active in that regard. What we are -- depending on what the day is and what the market's doing, we are somewhere in the sort of 86% to 92% funded range, depending on, again, where the asset values are.

So, that is another bucket for us that, candidly, if we've got additional cash flow -- that's actually pretty good payback for us, believe it or not, because you make a contribution, you get the tax deduction for it. And the way the pension accounting rules work, you actually get a decent return relative and particular to outstanding debt.

Okay, great. Then, over the past year, you made some significant asset sales, but also some smaller facility sales. Is there anything -- any assets being held for sale at this point?

There are none.

Okay, great. Then, you talked about a number of go-forward saving plans -- sorry, cost-saving buckets. Can you give us any sense for magnitude of potential EBITDA improvement from the cost savings you're looking for, in terms of distribution, packaging and other?

Well, I would say it this way -- and I appreciate the desire to get some hard number behind it, but I would tell you some of it is a little difficult to put a hard pencil on. The way I think to think about it is: One Smithfield is 100 to 200 basis points. I would tell you, at this point, I'm convinced it's 200 basis points. So, I may as well go out and say that.

I think we've already achieved 50 to 100 of that. That is the part that's a little bit difficult to put a pencil on because a lot of that is through our sales reorganization, and the idea that we are just approaching customers in a totally different way, and we are improving our distribution by acting in a coordinated fashion.

So, I would tell you, Carla, if you just do the pure math on 200 basis points on a $14 billion Company -- and I'll go ahead and use the entire revenue structure, although you could arguably cut out the international piece, which is, call it, $1.5 billion. Whether you're measuring it off of $12 billion or $14 billion, 200 basis points is a lot of money.

In other words, it's $250 million plus. So, I think we've got a fair amount left to uncover.

I would caution you that not to expect it right away. It is something that we'll be working on over the next 12 to 24 months. Part of it, we really need to be on one SAP to capture some of that. It's not that we're waiting for that, but that's the type of time horizon that we're working on.

Okay. Great. That's all my questions. Thank you.

Hale Holden, Barclays.

Where we were most surprised was on the Fresh Pork in the fourth quarter. Glenn, you talked about it a little bit with hog raising costs down and discounting in retail not as severe as the input costs for the hogs. I was wondering, on a go-forward basis, should we -- are you thinking that will normalize more back towards a historical margin rate? Or can you continue to capture the spread there?

Hale, thanks for the question. On a normalized basis, we've consistently said that we plan to generate between $5 and $10 per head in Fresh Pork. 2015 was around $6; 2014 was lower.

Again, there's a lot of volatility, Hale. I can't tell you that we're going to see -- or we can't really predict what the year's going to bring us, with respect to hog prices, and meat prices for that matter.

What I did say in Q4 is we saw a dramatic decrease in those raw material costs. What we benefited from was that meat prices didn't drop as quickly, okay, or as much for that matter.

You can look out in the market and see what analysts and industry folk will tell you what packer margins are going to be. But they don't predict them too far out in the future.

So, we haven't adjusted our normalized range. We still believe that $5 to $10 per head is appropriate. What we are hoping to do is, through One Smithfield, is optimize our operating profit return as a percentage of sales.

Hale, I would also tell you though that, on a relative basis, we have a plan to improve our fresh meat profits. It's a significant plan. Again, that is really consistent with One Smithfield, or some of the initiatives are really overlaps with One Smithfield. I do expect, on a relative basis, that our Fresh Pork operations will improve over the next 12 to 24 months --

Great.

-- ex any market issues.

Okay. Got it. Then just two other quick ones -- you said in Q4 that the exports to China were up double digits. I guess, there's no saturation point on the horizon where you'd see that slowing down, right?

No. I would tell you that, still on a relative basis, our exports to China, I think, are still less than 5% of our total production. We are increasing it significantly.

The benefit is we're doing it in a repeatable, consistent way, which is exactly the type of business that we need. It's the ad hoc, stop and start business that really is almost more problematic than it is helpful.

So, I would tell you we do have ambitious goals in terms of our export volumes to China. But I do think, as you point out, it's important to keep it in context.

The industry, of course, exports nearly a quarter of all the production. We're a little bit heavier than that. But that's going to 40 countries around the world.

The China component is one of the larger ones, but it's still, on a total basis, not yet, I don't think, more than 5%. If it is, it's hunting and pecking right around it.

Got it. Then the last one is: I was on the WH Group presentation this morning -- the commentary on the Smithfield branded product launch in China. I just want to confirm, my understanding is that you're just selling the -- the way you're booking the revenues, you just sell the Fresh Pork to WH, and then they rebrand it as Smithfield Pork? Is that right?

So, the plants that we built in Shuanghui, China, was built by our sister company, Shuanghui Development. We assisted in that project, in the sense that we provided engineering, food safety, marketing and operational support to that plant. I would tell you it's a wonderful plant. It's a world-class plant. They are producing Smithfield branded product.

We have provided raw materials, so there are US raw materials. For example, the bacon that they are producing is made from US bellies. But they are making it in their plant.

It is branded Smithfield. That's an exciting thing, in terms of an expansion -- global expansion of the brand. I'm told that the sales are better than they anticipated, coming right out of the box with a brand new plant. So, we'll see.

Great. Thank you for the time. I appreciate it.

Bryan Hunt, Wells Fargo.

Two follow-ups -- one, can you tell us what the extra week added, in terms of sales and earnings in the fourth quarter?

Yes. I would answer it this way -- and I should have said this at the outset. When Glenn mentioned the 53rd week, it made me think back to my opening comments.

I said our volume was up 7% for the year -- more than 7% for the year in Packaged Meats. That did include an extra week. So, you can sort of mathematically adjust that out. Nonetheless, in an industry that has historically been kind of flat to 1% or 2% or 3% growth at the most, we were pleased with it.

Great. Then my second question is: With regards to your capability to send cash up to the Parent for debt reduction, can you give us an idea what your RP basket is at the moment?

So, at the end of the year, our most restrictive basket was $660 million.

That is it for me. Best of luck. Thank you.

Operator, it appears that there's no more questions in the queue. We can end the call at this time. Thank you.

Thank you.

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