You should read the following information in conjunction with the unaudited consolidated condensed financial statements and the related notes in this Quarterly Report and the audited financial statements and the related notes as well as Management's Discussion and Analysis of Financial Condition and Results of Operation contained in our Annual Report on Form 10-K for the fiscal year ended April 27, 2008.

Unless otherwise stated, the amounts presented in the following discussion are based on continuing operations for all fiscal periods included. Certain prior year amounts have changed as a result of including our former beef operations in discontinued operations and to conform to current year presentation.

Our fiscal year consists of either 52 or 53 weeks, ending on the Sunday nearest April 30. The three and nine months ended February 1, 2009 consisted of 14 and 40 weeks, respectively. The three and nine months ended January 27, 2008 consisted of 13 and 39 weeks, respectively.

We are the leading processor and marketer of fresh pork and packaged meats in the United States, as well as the world's largest producer of hogs. We produce and market a wide variety of fresh meat and packaged meats products both domestically and internationally. We operate in a cyclical industry and our results are significantly affected by fluctuations in commodity prices for hogs, cattle and grains. Some of the factors that we believe are critical to the success of our business are our ability to:

††† maintain and expand market share, particularly in packaged meats,

††† develop and maintain strong customer relationships,

††† continually innovate and differentiate our products,

††† manage risk in volatile commodities markets, and

††† maintain our position as a low cost producer of live hogs, fresh pork and packaged meats.

We conduct our operations through five reporting segments: Pork, International, HP, Other and Corporate. Each segment is comprised of a number of subsidiaries, joint ventures and other investments. The Pork segment consists mainly of our seven wholly-owned U.S. fresh pork and packaged meats subsidiaries. As further described under "Significant Events Affecting Results of Operations - Pork Segment Restructuring" below, we will consolidate these seven subsidiaries into three. The International segment is comprised mainly of our meat processing and distribution operations in Poland, Romania and the United Kingdom, as well as our interests in meat processing operations, mainly in Western Europe, Mexico and China. The HP segment consists of our hog production operations located in the U.S., Poland and Romania as well as our interests in hog production operations in Mexico. The Other segment is comprised of our turkey production operations, our interest in Butterball, our live cattle operations and our interest in live cattle joint venture operations. The Corporate segment provides management and administrative services to support our other segments.

As discussed in further detail under "Results of Operations" below, we announced a plan, in February 2009 (fiscal 2009), to consolidate and streamline the corporate structure and manufacturing operations in our pork group to improve operating efficiencies and increase utilization. The Restructuring Plan will result in the consolidation of several of our Pork segment business units into three large operating companies. The new business model will allow us to focus on maximizing operating, marketing, financial and logistical synergies that will enable us to better meet the needs of our retail, foodservice and international customers who do business with multiple Smithfield Foods companies.

Our overall focus has shifted from acquisitions to integration, driving operating efficiencies and growing our high margin packaged meats business to fully leverage the benefits of over thirty years of opportunistic acquisitions. The consolidation of our independent operating companies into three strong, market driven companies with strong regional brands and a national presence, will better serve the needs of our customers, employees and other key stakeholders. We expect that the Restructuring Plan will result in annual cost savings and improved pre-tax earnings of approximately $55.0 million in fiscal 2010 and $125.0 million by fiscal 2011.

Third Quarter of Fiscal 2009 Summary

We incurred a net loss of $103.1 million, or $.72 per diluted share, in the third quarter of fiscal 2009, compared to net income of $54.5 million, or $.41 per diluted share, in the same quarter last year. The following significant factors impacted our third quarter fiscal 2009 results compared to the third quarter of fiscal 2008:

§ Pork segment operating profit decreased primarily due to the recognition of asset write-downs and other restructuring charges associated with the Restructuring Plan.

§ International segment operating profit decreased primarily due to higher raw material costs, decreased product demand and less favorable results from our equity method investments. We recognized a gain of $56.0 million on the sale of our interest in Groupe Smithfield to Campofrío, which is not reflected in operating profit.

§ The HP segment experienced a significantly greater operating loss due to significantly higher raising costs.

††† The Other segment incurred an operating loss primarily due to write-downs of cattle inventories resulting from a decline in live cattle market prices.

††† Fiscal 2009 results included a mark to market adjustment on derivative instruments of approximately $56.0 million, primarily in the HP segment.

Outlook

The commodity markets affecting our business are extremely volatile and fluctuate on a daily basis. The magnitude of commodity price increases and the subsequent decline over the past nine months is unprecedented. In this erratic and unpredictable operating environment, it is very difficult to make meaningful forecasts of industry trends and conditions. The outlook statements that follow must be viewed in this context.

††† Pork-Throughout fiscal 2008 and thus far in fiscal 2009, the industry experienced record hog slaughter levels. However, in fiscal 2010, sow liquidation in prior periods should result in fewer market hogs. We expect fresh pork prices and live hog values will increase gradually over time as supplies tighten. Fresh pork and packaged meats price increases will depend on the level of customer acceptance of such increases.

While some moderation may occur from fiscal 2008's record export levels, export levels for the remainder of fiscal 2009 and fiscal 2010 are still expected to be well above historical volumes. Domestic hog and meat prices remain a relative value compared to prices in other parts of the world and export demand continues to be strong. These factors should continue to support export sales, at least in the near term. However, some of our competitive advantage may be lost if fresh meat prices rise significantly or the U.S. dollar strengthens.

The restructuring initiatives announced in February 2009 (fiscal 2009) are expected to provide substantial cost savings going forward as we improve operating efficiencies and increase plant utilization.

††† International-Similar to conditions in the U.S., hog producers in Europe and the rest of the world have experienced high grain prices and large losses. They have reacted with herd liquidation. We expect lower slaughter levels will likely result in higher hog prices in Europe and pressure on fresh meat and packaged meats margins. We will attempt to mitigate this margin pressure through price increases, improved productivity and operating performance. We will continue to explore strategic opportunities to maximize the value of our European assets.

††† HP-We have seen a significant decline in market prices for grains over the past several months. As we have explained, we ensured availability of grain supplies last summer through the end of fiscal 2009 by locking in corn at approximately $6 per bushel through this period. As a result, feed costs will remain at these high levels through the end of fiscal 2009, making the HP segment unprofitable. We believe that raising costs have peaked and will begin to decrease in the first half of calendar 2009. Lower feed prices will increasingly be reflected in cost of sales each month, moving through the first half of fiscal 2010, as hogs consume cheaper feed.

Hog supplies have been at record high levels. Herd reductions should tighten supplies and push prices higher in both the U.S. and Europe, as the oversupply situation corrects itself in the coming months.

††† Other-Near term, we anticipate high grain costs will continue to adversely impact profitability of our turkey operations.

Significant Events Affecting Results of Operations

Smithfield Beef

In October 2008 (fiscal 2009), we completed the sale of Smithfield Beef, our beef processing and cattle feeding operation, to a wholly-owned subsidiary of JBS for $575.5 million in cash.

The sale included 100 percent of Five Rivers, which previously was a 50/50 joint venture with CGC. Immediately preceding the closing of the JBS transaction, we acquired CGC's 50 percent investment in Five Rivers for 2,166,667 shares of our common stock valued at $27.87 per share and $8.7 million for working capital adjustments.

The JBS transaction excluded substantially all live cattle inventories held by Smithfield Beef and Five Rivers as of the closing date, together with associated debt. The excluded live cattle are currently being raised by JBS for a negotiated fee and sold at maturity at market-based prices. We believe that all but approximately 65,000 of the remaining live cattle inventories will be sold by the end of fiscal 2009, with substantially all sold by the second quarter of fiscal 2010.

The net proceeds from the JBS transaction were used to pay down our U.S. Credit Facility and other long-term debt. As of February 1, 2009, we had received approximately $42 million in net proceeds from the sale of the retained live cattle inventories, which we used primarily for debt reduction. Based on market prices as of February 1, 2009, we expect to receive an estimated $90 million of additional net proceeds from the remaining live cattle inventories, which we also plan to use primarily for debt reduction.

We recorded an estimated pre-tax gain of approximately $95.0 million ($51.9 million net of tax) on the sale of Smithfield Beef in the second quarter of fiscal 2009. We recorded an additional gain of approximately $4.5 million ($2.4 million net of tax) in the third quarter of fiscal 2009 for the settlement of differences in working capital at closing from agreed-upon targets. These gains were recorded in income (loss) from discontinued operations.

The following table presents sales and net income of Smithfield Beef for the fiscal periods indicated:

                          Three Months Ended                   Nine Months Ended
                    February 1,        January 27,       February 1,       January 27,
                       2009                2008             2009              2008
                            (in millions)                        (in millions)
      Sales        $           -       $      670.5     $     1,699.0     $     2,135.1
      Net income               -                1.4               0.9               2.2

Smithfield Bioenergy, LLC

In May 2008 (fiscal 2009), we completed the sale of substantially all of the assets of SBE for $11.5 million. During the first quarter of fiscal 2008, we recorded an impairment charge of $6.7 million, net of tax of $3.8 million, to write-down the assets to their estimated fair value. We recorded an additional impairment charge of $2.9 million, net of tax of $1.6 million, in the third quarter of fiscal 2008. These impairment charges were recorded in income (loss) from discontinued operations.

The following table presents sales and net loss of SBE for the fiscal periods indicated:

                         Three Months Ended                   Nine Months Ended
                   February 1,        January 27,       February 1,        January 27,
                      2009                2008             2009               2008
                           (in millions)                        (in millions)
       Sales      $           -       $        4.2     $         3.8      $        20.0
       Net loss               -               (4.5 )            (2.7 )            (13.3 )

Groupe Smithfield-Campofrío Transaction

In June 2008 (fiscal 2009), we announced an agreement to sell Groupe Smithfield to Campofrío in exchange for shares of Campofrío common stock. In December 2008 (fiscal 2009), the merger of Campofrío and Groupe Smithfield was finalized. The new company, known as Campofrío Food Group, is listed on the Madrid and Barcelona Stock Exchanges. The merger created the largest pan-European company in the packaged meats sector and one of the five largest worldwide.

Immediately prior to the merger, we owned 25% of Campofrío and 50% of Groupe Smithfield. After giving effect to the merger, we currently own 37% of the combined company, which continues to be accounted for under the equity method of accounting.

We determined that the transfer of our interest in Groupe Smithfield to Campofrío met the conditions of a sale in accordance with SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities - A Replacement of FASB Statement No. 125." Accordingly, we recorded a pre-tax gain of $56.0 million on the sale within other income in the third quarter of fiscal 2009.

The amounts presented for Campofrío Food Group throughout this Quarterly Report on Form 10-Q represent the combined results of Groupe Smithfield and Campofrío.

Pork Segment Restructuring

In February 2009 (fiscal 2009), we announced a plan to consolidate and streamline the corporate structure and manufacturing operations of our pork group. This restructuring is intended to make us more competitive by improving operating efficiencies and increasing plant utilization. The plan includes the following primary initiatives:

††† the closing of the following six plants. The production at each of these plants will be transferred to more efficient facilities:

††† Smithfield Packing's Smithfield South plant in Smithfield, Virginia;

††† Smithfield Packing's Plant City, Florida plant;

††† Smithfield Packing's Elon, North Carolina plant;

††† John Morrell's Great Bend, Kansas plant;

††† Farmland Foods' New Riegel, Ohio plant; and

††† Armour-Eckrich's Hastings, Nebraska plant;

††† a reduction in the number of operating companies in the pork group from seven to three;

††† the merger of the fresh pork sales forces of the John Morrell and Farmland Foods business units; and

††† the consolidation of the international sales organizations that are responsible for exports of several of our operating companies into one group.

The new business model will allow us to focus on maximizing operating, marketing, financial and logistical synergies that will enable us to better meet the needs of our retail, foodservice and international customers who do business with multiple Smithfield Foods companies. We expect to achieve a net reduction of approximately 1,800 jobs in the pork group as a result of the restructuring. We expect the initiatives will be substantially completed by the end of the third quarter of fiscal 2010. We believe the Restructuring Plan will result in annual cost savings and improved pre-tax earnings after applicable restructuring expenses of approximately $55.0 million in fiscal 2010 and $125.0 million by fiscal 2011.

As a result of the announced plant closures, we recorded impairment charges of $72.8 million in the third quarter of fiscal 2009 for the write-down of assets. The charges included $68.0 million of write-downs of property, plant and equipment to reduce the carrying amounts of the long-lived assets that will be sold or disposed of to their estimated fair values in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The fair values of the plant facilities were determined based on estimated market values obtained from multiple real estate brokers. Additionally, certain inventories, totaling $4.8 million, were written off as they will be unusable at other operating locations. All of these charges were recorded in cost of sales in the Pork segment.

In addition, we recorded charges totaling $12.0 million in the Pork segment in the third quarter of fiscal 2009 for employee related benefits. These charges included estimated employee severance benefits, which were accrued in accordance with SFAS 112, "Employers' Accounting for Postemployement Benefits-an amendment of FASB Statements No. 5 and 43," and an estimated obligation for the partial withdrawal from a multiemployer pension plan. Of these charges, $6.5 million was recorded in cost of sales with the remainder recorded in selling, general and administrative expenses. As of February 1, 2009, none of these amounts had been paid.

We anticipate recording additional charges totaling approximately $30 million over the remainder of fiscal 2009 and the first half of fiscal 2010 comprised of $6 million for employee relocation and other benefits, and $24 million for plant consolidation, asset disposal and plant wind down and mothball expenses. In addition, we estimate that $53.0 million in capital expenditures will be required relative to plant consolidations in the remainder of fiscal 2009 and in fiscal 2010.

Hedge Accounting

The results of operations for fiscal 2009 reflect our decision to apply hedge accounting to certain commodity derivatives, primarily grain futures, entered into during fiscal 2009. In fiscal 2008, all commodity derivatives were marked to market through earnings. For derivatives that qualify and have been designated as hedges for accounting purposes, changes in fair value have no net impact on earnings, to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged, until the hedged item is recognized in earnings.

Classical Swine Fever

In August 2007 (fiscal 2008), outbreaks of CSF occurred at three of our thirty-three hog farms in Romania. During the second quarter of fiscal 2008, we recorded approximately $13.0 million of inventory write-downs and associated disposal costs related to these outbreaks in the HP segment.