The Ham Man

Joe Luter III, chairman of Smithfield Foods and scourge of environmentalists and public health advocates, talks about his career and the family pork business he turned into a behemoth.

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Luter Main

In 1936, when the Smithfield Packing Co. was founded, there were four little ham and pork companies in the southeastern Virginia town of Smithfield. Today, there is only one—Smithfield Foods—and there is nothing little about it anymore. Indeed, Smithfield Foods is the largest pork producer and processor in the United States and the world. In the United States, the company has a dominant 26 percent market share (ahead of Tyson and Swift/Conagra), selling fresh pork and processed pork products under various brand names including Armour, Farmland, Gwaltney, John Morrell, Patrick Cudahy and Smithfield Premium. The company processes more than 30 million hogs a year—about 125,000 a day—and its sales in fiscal 2009 (ending last April) were $12.5 billion.

     Joe W. Luter Sr. and his son, Joe W. Luter Jr., started Smithfield, but it was Joe Luter III, the 70-year-old chairman, who turned the company into a behemoth, largely through more than 20 acquisitions over the last 20 years. His father died in 1962, when he was a student at Wake Forest University, and not long after that Luter III took over as company president. He was 26. Three years later, he sold Smithfield to a small conglomerate. Under its control, Smithfield faltered, and Luter III returned to the firm as chief executive officer in 1975. After stabilizing the company, Luter went on a buying spree, buying up several major competitors at mostly bargain prices and turning Smithfield into a processing powerhouse. Over the last decade, he and top management have pushed the business into international markets—chiefly Mexico, China and Eastern and Western Europe.

      The last 12 months have been somewhat tumultuous for Smithfield. First, in December of 2008, workers at the company’s hog-killing plant in Tar Heel, North Carolina (the world’s largest), voted to unionize. Then in February of 2009, the company announced that, aiming to boost productivity, it was closing six processing plants—including one of the firm’s original facilities in Smithfield (one remains). Next came the swine flu scare, which has brought more scrutiny of the company by health officials and environmentalists who have long decried the health dangers of large-scale hog farms. Robert Kennedy Jr. has been a longtime critic of Luter III and the processed pork industry. Luter III is used to hearing criticism and shrugs most of it off with his plain-spoken manner, sometimes reminding people (via the old folk tale) that men who die with no enemies did not do much with their lives.

      Luter III is no longer involved in the day-to-day management of Smithfield but chairs board meetings and stays in regular contact with CEO Larry Pope. Luter III once had a home on Park Avenue in New York City, but he now spends most of his time in Palm Beach and Aspen with his second wife, Karin, and their 8-year-old daughter, Erika. (He has three adult children from his first marriage, one of whom, son Joseph Luter IV, is an executive vice president of Smithfield Foods.) Luter III returns to Smithfield’s new headquarters on the Pagan River about six times a year. Richard Ernsberger Jr. sat down with him recently in his spacious office, decorated with a large tapestry, a Japanese line drawing and a portrait of his father, to talk about the company and his life. Excerpts (Note: This online version of "The Ham Man" is an extended version of the interview that appeared in October's print edition of Virginia Living):

What was Smithfield like when you were young?

I grew up about 300 yards from here—at the top of the hill, fourth house on the right. I used to go through the woods right where this office building is—it used to be a pine forest … where all the local drunks would drink beer on Saturday nights. Smithfield was a typical small-town southern community. I grew up when it was about 3,500 people, in an era when life was quiet and conservative. My father never left the house unless he had a hat on, along with a jacket and tie. My mother never left the house without wearing short heels and a dress; they didn’t wear slacks or blue jeans. It was a more formal era … a much poorer time in financial ways but much richer in many other ways ….

How would you describe your mother? I know that she died recently.

She was 89. … My mother was a very humble person. She came from a blue-collar background. Her mother died when she was an infant. She was raised by her aunt, Mrs. Sykes, who ran the Sykes Inn in Smithfield. Her father lived until she was about 18; he was a shipyard worker. Her three brothers worked at the shipyard too, in Newport News, which is about 17 miles from here. So she came from a [modest] background. She had three children, and they came first. My father used to say the children came first, the dogs came second and he came third—and he wasn’t too far wrong [laughs].

How did your father and grandfather come to start Smithfield Packing in 1936?

They both worked for P.D. Gwaltney. My grandfather was a salesmen for many years … his whole life, really, until 1936. And my father had worked himself up to where he was the general manager of the Gwaltney meat business. Mr. Gwaltney died, and he had three sons who came back to the business, understandably so. My father could see that his future was limited, so he and my grandfather decided to strike out on their own. They didn’t have any money, but they knew some people who had some money in the community … Peter Pruden, from Suffolk, and John S. Martin from Richmond provided the cash, and my father and grandfather provided the sweat equity. They started Smithfield Packing Co. right here, on the site where there are statues of them today.

      They built a ham house and cured Smithfield hams. They went to Suffolk and picked up about 15 hog carcasses a day—brought them here, cut them up, put the hams in a box and threw ’em in the back of a truck and sold them to mom-and-pop stores in Newport News and Norfolk. Then the Second World War came along, and they prospered like everybody else did during the war. In 1946, they built the present Smithfield Packing Company plant, which is right across the river here. It was a very small operation at that time—they were killing about 300 hogs a day, and expanded and expanded and actually got up to about 3,500 a day over the years.

What kind of man was your father?

Business, business, business. I’d go weeks without seeing him, and we were living in the same house. He was usually in the office by 6:30, before anyone else got there, and stayed until 6:00 at night. He’d go home and have dinner, watch the nightly news, then go back to work and stay until 9:30 or 10:00. He didn’t have any hobbies; the business was his work and also his pleasure. He died in 1962, at the age of 53. He had diabetes and a bad heart and smoked three packs of cigarettes a day. He had his father there, but [he was] blind and old … and died in ’47. The real thrust was provided by my father.

Was there a rivalry between your family and Gwaltneys?

It was an intense rivalry. Would they put us out of business if they had a chance? Absolutely. I would say it was very competitive—not vicious, but intense. I’ve always believed that neither company would have been as successful as it became without the other prodding it along.

You worked at the packing plant when you were fairly young, didn’t you?

I worked here in the summertime, and even worked the Christmas holiday. I worked on the kill floor, the cut floor, the pig pen, loading the trucks ….

What was that like, working the kill floor?

It’s tough, hard work—dirty work. But it made you appreciate the workers, and I think I’ve always had an empathy for them. I know how they think because I used to work side by side with them—I worked on the loading dock one summer, alongside 25 husky, muscular black men, and I got along great with them. I learned where they were coming from, and I’ve found it beneficial over the years … I’ve always liked to work. At age 15, I applied at the local grocery store and became a bag boy and then a stock clerk. I couldn’t work at [our firm] because you had to be 18 to work at a meat packing plant.

Was your dad keen for you to work for his company?

No, we never discussed it. He wasn’t at home a lot, but when he came home it was sort of verboten to talk about the business. He lived it all day long, so he didn’t want to rehash it at home, plus neither my mother nor I was sophisticated enough to understand it. I graduated from college in ’62, came to the business and worked in sales until ’66. I became president [that year]. … My father never wanted to control the company, and when he died he only owned 42 percent of Smithfield. But I was fairly ambitious and went out and borrowed every cent I could find and bought eight-and-a-half percent of Smithfield, which took me to a little over 50 percent [ownership]—and then pushed myself into the presidency. I couldn’t have done it otherwise—that was the fastest way!

You once said that you were over your head in those years.

When you’re 26, you think you know it all. But then I had all the responsibility, and a lot of things were new. I did not have a lot of seasoning for the job, but we did very well. I increased the size of the company by about 50 percent. When I took over, we were killing about 3,000 hogs a day—and when I left in January of 1970, after selling the business in July of 1969, we were killing 5,000 a day, which is a pretty big jump. I guess our number of employees went from about 800 to 1,400 or so. The company was doing very well. I was the only family member in the business. I had two sisters, and their husbands weren’t interested in the business.

Why did you sell it?

Chip Mason, from Mason & Co. in Newport News. They were a small brokerage house at that time. I got a call, and Chip Mason and a guy named Doug Petty came over, and we had lunch at the Smithfield Inn. This was in 1968. They said there was a company that wanted to buy Smithfield. I told them it wasn’t for sale—and they said, “Would you sell it at any price?” And the businessman in me [was intrigued]. And I said, “Yeah, I’ll sell it for $20 million.” That’s not a lot of money today, but in 1968 it was maybe [the equivalent of] $250 million. That was three times book value—and like 22 times earnings. I thought it was a price that was extremely generous.

      I didn’t think any more about it. [Mason] called me back a week later and said Liberty Equities had agreed to pay it. The money came from Allen and Co. in New York, a top investment bank. The guy who ran the company at that time was named Wyatt Dickerson. He was married to Nancy Dickerson, who was, you might remember, the first female TV newsperson—she was even before Barbara Walters. We closed [the deal] in July of ’69. At that time, they said they wanted me to stay—“You’re doing a great job, blah, blah”—and six months later I was fired, in January of ’70.

What did you do then?

I left and bought controlling interest in a fledgling ski resort in Virginia called Bryce Mountain. Bryce was the state’s first four-season ski resort—golf, tennis, swimming, horseback riding. And I began to develop it. We did well, sold 2,600 lots in about two-and-a-half years. So I did that from 1970 to 1975.

And in ’75 you were back at the company. How did that unfold?

The people who bought Smithfield, Liberty Equities, ran it into the ground. The banks had stepped in and said, “Make a management change or we’re going to call the loan.” I heard about it, went to the banks and offered my services. The banks were reluctant to hire me, but they strongly encouraged the board to do so. I was hired back in April of 1975, and at that time the net worth of Smithfield was under $1 million—I remember these numbers perfectly—and it had long-term debt of $17 million, and it was losing money at a rate of $2 million a year. The company lost money in December of 1974—which, as I said at the time, was like Budweiser losing money in July! If Smithfield is losing money in December, with all the holiday ham business, you’re in deep trouble.

So were you eager to get back in the business?

No, no. I had a beard and was wearing blue jeans and running a ski resort. I was perfectly happy. They were the best years of my life, because I didn’t have any stress. I told the board that I saw myself as an interim CEO who would be here for a year or two years. My father and grandfather had put their whole life into this thing, and I didn’t want to see it fail. I came back at a very modest salary at the time, but took [stock] options instead, because the company had very little cash at the time. I came back, got the company turned around and we were profitable within six months. [Revenues] started going straight up… By 1981, I finally got myself in a position where I could think about expanding. The banks were happy—they’d already written off the loans and got the chance to put them back on the books.

And what’s when you bought Gwaltney?

When I was at Bryce Mountain, our competitor, Gwaltney, was sold to ITT. It was a big conglomerate, and they didn’t know how to run this kind of company either. I approached them [to buy the company] in ’79 and was turned down, then approached them again in ’81, after they’d had a bad year or two, and ended up buying the company. ITT was buying everything—there were in the timber business, insurance, technology … nothing was out of bounds. They said a good accountant can run any kind of business—just run it from the numbers, which is nonsense, because it takes different personalities to run different businesses. You can’t run a cosmetics company the same way you run a meat company—they’re different.

      We were successful in buying Gwaltney for $42 million, and that was the first big acquisition. We did well—Gwaltney gave us a synergy and the concentration to be the dominant player on the East Coast. Everybody on the East Coast has gradually been pushed out of business.

Does it surprise you how big Smithfield has gotten?

Well, I thought I’d come back and stay for one or two years and then go back to my ski resort. The first time around, I tried to run the company like my father ran it, and I was on Alka-Seltzer. He had his hands on everything. You couldn’t spend 10 cents without his approval; that’s why he was working 16 hours a day. But by the second time around, I’d had five years to reflect and I’d learned something: to delegate more. I said, “I’m not going to be here at 6:30 in the morning; I’m going to come in at 8:30 or 9:00.” I had a very capable guy named George Hamilton, on whom I depended on heavily—and I turned over virtually all the day-to-day operations to him. Then we bought Esskay in Baltimore and Valley Dale in Roanoke, bought the Wilson plant in North Carolina … we’ve basically bought every pork company on the East Coast.

How were you able to be a buyer and not a seller?

Well, only a fool evaluates oneself. Pork businesses were being sold to companies that didn’t understand them. Swift, Armour and Wilson were the big three, and they’re all gone. They were sold to conglomerates. There weren’t any real aggressive people out there. I don’t think I’m that smart—it’s just that my competitors were inept. I really mean that. We bought assets in the Midwest—Morrell, for one—for very cheap prices. In recent years, we haven’t been able to buy any companies on the real cheap, but we did for a while.

Your workers here are unionized, aren’t they?

Oh, yeah, most of them.

And you have good relations?

You never have what I call “good” relations. You have satisfactory relations.

Your workers at the Tar Heel plant in North Carolina recently voted to unionize. What’s your reaction to that?

They voted union by a vote of 52 percent to 48 percent. It’s fine. Most of our other plants are unionized. I don’t see it as a negative, but I wasn’t going to force people to join a union until they voted to do it. Economically, we should have recognized the union and [avoided] the boycott that we’ve had … the United Food Commercial Workers boycotted our products and picketed because we would not recognize them without the majority vote of our employees.

Will this result in higher labor costs there?

We’re paying there what we’re paying in our unionized plants—they aren’t exactly the same, but with the whole package together they’re close to the same. … A lot of people believe, for some reason, that the company is not unionized, or that we’re anti-union, and that’s not the case. The great majority of our plants are unionized.

How does a recession affect the pork business?

Normally, we do very well in a recession. Obviously, people have to eat, and we’re primarily in pork and turkey, not high-priced beef or seafood. The pressure we feel today is because of the government’s ethanol policy: We’re taking one-third of the U.S. corn crop (a primary feed for hogs) and burning it into ethanol, and the government [argues] that this is not dramatically raising the price of corn, which is nuts. You can’t reduce the supply of any commodity by one-third and not have substantial price increases. That’s the biggest [problem] we’re facing. It makes for a very, very tough business environment.

Environmentalists have heaped criticism on the pork industry, Smithfield and you personally on the issue of large-scale hog waste and the health issues related to it. Have the critics been unfair?

Oh, absolutely, but I try not to dwell on it. Bobby Kennedy’s new line is that Smithfield Foods’ pigs create more poop than the entire city of New York. OK? [My response is]: There are 8 million people in New York, and we raise 20 million pigs a year. Yes, 20 million pigs poop more than 8 million people. [Laughs.] The pigs have to poop someplace, and rather than have free-range pigs pooping on the ground—and every time it rains the waste gets washed down into the ravines and then pollutes the water—we’ve got it contained in lagoons, where it gets treated. We take the effluent and spray it on crops, and they absorb the nitrogen and the phosphorous. This is called organic farming. So I am very comfortable with what we’re doing. We’re using the best available technology, and doing the best we can. If you want to eat meat in this country … pigs do poop, chickens do poop, cows do poop.

      This is not a glamorous business. My public relations skills don’t exist. I used to respond to critics by saying, “You dumb bastard …,” and then I hired others to speak for me.

Do you have friends in Florida, New York or Colorado who are environmentalists or vegetarians?

Oh, sure. I tell them that most of the vegetarians I’ve known are neurotic. See, I told you that I don’t have any public relations skills!

I see you’re still selling hams under the Luter name.

It’s a Smithfield ham, and we kept the Luter name. When I sold the company, it was Luter. [Liberty Equities] thought the Smithfield name was much better known than the Luter name, so they took the Luter name off all the brands and put Smithfield on them. When I came back, I agreed with the decision. I’ve never been one who’s [preoccupied] with having my name on things … that’s not where I’m coming from. But on the Smithfield ham, we couldn’t say Smithfield Smithfield ham … so they kept the Luter name on that one item. We sell a lot less Smithfield country ham today than in the past.

Really?

Oh, yes. We sold more Smithfield hams when we had $35 million in sales than we did last year we had $12 billion in sales. It’s the salt content. People are going for milder flavors and getting away from the [country] style.

You still eat ham?

Yes, although I probably consume more seafood than pork these days.

There are statues of your father and grandfather on the lawn outside this headquarters building. Your idea?

Yes, they were just put up in the last few months. They did the hard part—starting from nothing. I had it fairly easy: All I had to do was buy 8 percent of the stock and push myself in [laughs]. They started the business right there, and worked twice as hard as I did.