Smithfield Foods, Inc., a wholly owned subsidiary of WH Group Limited, reported record 2014 third quarter results. Sales for the Q3-2014 were $3.7 billion, up 11% from last year in the same quarter. Net income was $155.3 million, compared to net income of $35.4 million in 2013.
The consolidated operating profit rose 218% over last year to $250.1 million with higher earnings reported in every business segment: Packaged Meats operating profits up 43%, hog production increased 188%, international operating profit up 133% and fresh pork results showed increase of $10.4 million.
Hog production operating margins were record high at 17%, or $42 per head. Results were fueled by the combination of operational improvements that are driving productivity gains and favorable market conditions. Year over year, live hog market prices increased 17% to $85/cwt. primarily due to PEDv, which resulted in reduced hog supplies. Raising costs declined 7% to $65/cwt. Head sold dropped 14%, but 4% heavier weights offset a portion of the volume loss attributable to PEDv.
Fresh pork operating margins increased 1%, or $2/head. Seasonally, fresh pork margins trough in the third quarter. Results improved, however, over the same period last year, as lower domestic protein production and solid global demand supported a 19% jump in the USDA pork cutout. The company processed 9% fewer hogs, as the effects of PEDv disrupted pig flows, although higher hog weights provided a counterbalance and offset a portion of the reduced supplies. Foodservice sales volume and dollars grew.
Packaged meats operating margins were 6%, or $.18/lb., notwithstanding significantly higher input costs. Volume grew 4% with double digit increases in bacon, spiral hams, hotdogs, precooked sausage, precooked entrees and precooked ribs. Retail and foodservice volume and dollars were notably higher, as were branded packaged meats sales. Retail branded sales volume of the company's Armour, Cook's, Farmland, Healthy Ones, Kretschmar and Margherita brands expanded.
International operating margins grew to 9% due to significantly higher sales volume and lower raw material costs in the company's eastern European operations as well as an increase in equity income from its joint ventures in Mexico.
"Looking forward, we will continue to sharpen our strategic focus and drive operational improvements across our entire platform. Our most exciting growth prospect is the ongoing development of our packaged meats business. With the integration of two of our independent operating companies, we have improved our competitive cost structure and aligned our organization to better serve our customers' needs. We will continue to strengthen our consumer-focused marketing programs and promote innovation to improve our product mix toward branded, value-added products. Consequently, we expect to deliver modest volume growth and very solid packaged meats margins, even in the midst of the highest raw materials cost we have ever experienced," Mr. Pope remarked.
Furthermore, "Barring a reemergence of PEDv, which remains a real wild card, we could see modest pork production expansion in 2015, although lower prices should spur additional export demand. Identifying and executing synergistic opportunities with WH Group and Shuanghui, our sister company in China, also remains a priority and an opportunity to bolster profitability. At the same time, our cost structure should benefit from a record large US corn and soybean crop. With the harvest well underway, corn and soybeans continue to trade near 5-year lows. All of this should allow us to maintain normalized fresh pork margins and above normalized hog production margins," he stated.
Mr. Pope concluded, "A combination of operating initiatives and synergies should continue to fuel very strong earnings for Smithfield for the remainder of 2014 and beyond."