Smithfield reports cost, price issues for hog operations

Smithfield reports cost, price issues for hog operations

- Higher volumes were offset by lower hog and pork prices. - Company refinanced balance sheet and repurchased shares. - Hog operations

SMITHFIELD Foods Inc. has reported considerably lower net profits for its fiscal 2013 second quarter but noted that its results included a charge for the early extinguishment of debt, without which earnings would have surpassed year ago.

Accordingly, the company said second-quarter performance was "solid," reflecting continuing efforts "to deliver higher-quality and more consistent earnings -- led by growth in our packaged meats business -- even when faced with challenging commodity markets."

Smithfield's results are shown in the Tables.

The company said higher volumes across all business segments were more than offset by lower hog and pork prices, which adversely affected earnings and sales in the quarter.

Smithfield said it completed several actions in the quarter to refinance its balance sheet, and related to these steps was the early debt extinguishment, which incurred a charge of $120.7 million, or 54 cents per share, and also affected earnings.

Chief executive officer and president C. Larry Pope said the company continues to believe that its share price is undervalued, pointing to a consistent and strong cash flow, ample liquidity and a conservative balance sheet.

For this reason, he said Smithfield repurchased 3.4 million shares for $67 million in the quarter and, in the last 17 months, has repurchased 28 million shares, or 17% of the company's outstanding stock, for $575 million.

 

Operating results

For its hog production segment, Smithfield acknowledged disappointing results due to higher-than-year-ago corn prices and other rising costs and lower hog prices that were somewhat tempered by favorable hedge positions. The company said hog prices in the quarter (August through October) averaged $58/cwt. on a live-market basis, while production costs were $69/cwt.

Pope said Smithfield expects hog prices to strengthen in the company's second half, supported by steady pork supplies and demand and lower supplies of beef and chicken. He added that the company's risk management strategies should continue to lessen the impact of high-priced grain.

He said hog operations should be slightly profitable by the end of the fiscal year in April and should be breakeven for the year.

For its fresh pork segment, Smithfield called margins "robust" -- rebounding from the first quarter -- due to an improvement in mix toward branded and more value-added pork products, widespread domestic featuring and continued strong exports, although export volumes were down because China did not buy as much as in the previous year.

For its packaged meats segment, Smithfield credited strong profitability in the segment to lower raw material costs, an improved mix of products and increased spending for marketing, advertising and promotion.

The company said it achieved gains in several key product categories, including bacon, sausage and spiral hams, and in several key trade channels, including deli, foodservice and retail.

Pope reported broad-based growth in packaged meats, driven by brands and new products that were marketed under the company's health and wellness, convenience and taste platforms. He said growth was also supported by increased national distribution.

He reported that Smithfield has the leading market share in bacon, which now exceeds 20% of the market.

For its international segment, Smithfield noted that income more than doubled from the year before due, in large part, to its hog operations in Eastern Europe, especially given that the company's Romanian operations recently were approved to export to the European Union.

However, the company said higher raw material costs and pressures related to the recession weighed on Campofrio, its European processed meat business.

Smithfield, based in Smithfield, Va., is the largest hog and pork producer in the U.S. It had fiscal 2012 sales that totaled $13.1 billion.

 

1. Smithfield earnings and sales*

 

-Second quarter-

-Six months-

 

2013

2012

2013

2012

Sales (billion $)

3.226

3.313

6.317

6.407

Earnings (million $)

10.9

120.7

72.6

202.8

Earnings per share ($)

0.07

0.74

0.48

1.23

 

2. Smithfield operating results (million $)*

 

-Second quarter-

-Six months-

Sales

2013

2012

2013

2012

Hog production

734.0

785.3

1,462.8

1,535.1

Fresh pork

1,237.3

1,292.4

2,498.3

2,546.6

Packaged meats

1,483.6

1,482.4

2,822.2

2,825.5

International

358.6

391.1

705.4

766.1

Income

 

 

 

 

Hog production

(32.6)

63.9

(9.5)

133.6

Fresh pork

94.7

96.2

82.7

131.6

Packaged meats

99.6

75.0

230.2

176.3

International

40.9

17.3

56.7

17.3

*For the quarters ended Oct. 28, 2012, and Oct. 30, 2011.

 

Volume:84 Issue:52

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