Smithfield hit by high grain prices, 'disrupted' exports

Smithfield hit by high grain prices, 'disrupted' exports

- Hedging helped mitigate production costs. - Smithfield resumes exports to China from its ractopamine-free plants. - Company to look

SMITHFIELD Foods Inc. has reported substantially decreased earnings for its fiscal 2013 fourth quarter and full year, citing positive steps toward its transformation into a higher-margined packaged meat company but also increased grain prices and, in recent months, "disrupted" exports that pushed additional pork back onto the domestic market and adversely affected its hog production and fresh pork segments.

Nevertheless, Smithfield said its overall pork business delivered its second-best year in the company's history, reflecting its "continued transformation" into a packaged meat company that provides value-added, branded meat products to consumers. Fiscal 2013 packaged meat volume grew 4%, and operating profits increased 17%, the company said.

Still, fiscal 2013, which ended April 28, was "a challenging year," according to chief executive officer and president C. Larry Pope.

He said higher costs for grain in the year because of last summer's drought increased costs for hog production, and in the fourth quarter (February through April), pork sales to almost every export market were down, especially to China and Russia due to ractopamine issues and to Japan due to the weakened yen.

Smithfield's financial results are shown in the Tables.

Smithfield noted that fiscal 2012 fourth-quarter results included a benefit of $16.8 million, or 6 cents per share, from insurance reimbursements for proceedings related to environmental lawsuits against its operations in Missouri that were settled in the company's favor.

 

Operating results

For its hog production segment, Smithfield said its hedging maneuvers mitigated the effect of grain prices and produced results that were better than the industry average, with margins that were a negative $11 per head in the fourth quarter and a negative $7 per head over the year.

In the fourth quarter, hog prices decreased 6% to $59/cwt., live cash basis, while costs increased 5% to $68/cwt., the company said, and over the year, hog prices decreased 6% to $61/cwt., while costs increased 6% to $68/cwt.

For its pork segment, Smithfield said fourth-quarter fresh pork volume was strong in the domestic retail trade, up 10%, but export volume was down by double digits on fewer shipments to China, Russia and Japan. The company said it resumed shipments to China in mid-March, shipping pork from its plants in Clinton and Tar Heel, N.C., and Milan, Mo., which are 100% ractopamine free.

Smithfield said fourth-quarter packaged meats produced solid results, and volume was up across all key market channels and in nine of its 12 core brands. The company said it increased market share in cooked dinner sausage, dry sausage, ham steaks and marinated pork.

For its international segment, which includes hog production in Poland and Romania and Campofrio processed pork products in Europe, Smithfield said fourth-quarter results were affected by high grain prices and high pork costs and recessionary pressures.

 

Outlook

Pope said, in fiscal 2014, Smithfield plans to continue its strategic growth plan to further evolve into a packaged meat company and improve its earnings stream.

He said this includes taking steps to "strategically" differentiate hog production from other producers, to create "a culture of innovation" to develop new products that will drive packaged meat volumes and margins, to invest more in direct-to-consumer marketing to build brands and sales and to pursue mergers and acquisitions in packaged meats and value-added products.

Smithfield noted that it has entered into an agreement with Shuanghui International Holdings Inc., the largest pork producer in China, in which Shuanghui will acquire Smithfield for $34.00 per share and an assumption of debt in a deal valued at $7.1 billion (Feedstuffs, June 3).

The company said the acquisition needs to be approved by its shareholders and regulatory agencies, including the Committee on Foreign Investment in the United States, and in light of this, Smithfield said it will no longer conduct conference calls or grant interviews regarding its financial results.

Smithfield, headquartered in Smithfield, Va., is the largest hog producer and pork processor in the U.S.

 

1. Smithfield earnings and sales*

 

-Fourth quarter-

-Full year-

 

2013

2012

2013

2012

Sales (billion $)

3.321

3.209

13.221

13.094

Earnings (million $)

29.7

79.5

183.8

361.3

Earnings per share ($)

0.21

0.49

1.26

2.21

 

2. Smithfield operating results (million $)*

 

-Fourth quarter-

-Full year-

Sales

2013

2012

2013

2012

Hog production

834.4

755.7

3,135.1

3,052.6

Fresh pork

1,180.6

1,239.6

4,924.1

5,089.4

Packaged meats

1,571.9

1,488.6

6,152.0

6,003.6

International

370.0

340.2

1,468.5

1,466.7

*For the quarters ended April 28, 2013, and April 29, 2012.

 

Volume:85 Issue:25

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