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Smithfield profit beats forecasts, but Campofrio charge hits net earnings
Story Date: 3/9/2012
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Source: MEATINGPALCE, 3/8/12
Smithfield Foods Inc. reported a fiscal third-quarter profit that exceeded analysts’ expectations on strong packaged meat sales and healthy world demand for pork.
But hefty charges related to the company’s stake in Spanish meat producer Campofrio Food Group hurt net earnings, which fell 61 percent from the same period a year ago.
Smithfield said it earned 15 cents a pound on its packaged meats despite significantly higher raw materials costs. “We’ve been very successful in passing through the raw material cost increases that the industry has been seeing,” Chief Executive Larry Pope told analysts on a conference call.
Smithfield, the largest U.S. pork producer, posted a small loss in its hog production business as higher grain prices drove raising costs to $64 per hundredweight from $52 in the same quarter a year ago, the company said. It projected raising costs would remain in the mid-$60s this fiscal year and average in the low $60s in fiscal 2013.
Results in the fresh pork business slipped after the start of the calendar year following two profitable months in November and December. But the company said it expects its fresh pork business will be a solid contributor to overall results as U.S. protein supplies contract and export demand remains strong.
Pope noted the company has reduced both its interest and pension costs, and its balance sheet is in “terrific shape.”
“I assure you I am sleeping very well these days. The business is performing very well,” he said.
Smithfield reported net income in the third quarter ended Jan. 29 fell to $79 million, or 49 cents a share, from $202.6 million, or $1.21 a share, a year ago, when gains from an insurance settlement boosted year-ago results.
Excluding restructuring charges related to the Campofrio investment and other charges, earnings were 69 cents a share, three cents above the average analyst estimate according to Thomson Reuters.
Total sales in the quarter increased 9 percent to $3.5 billion. Packaged meat sales grew 6 percent, foodservice sales rose 8 percent and export sales jumped 68 percent.
“Outperformance in packaged meats, fresh pork and international more than offset weaker hog production results,” Deutsche Bank analyst Christina McGlone said in a note to clients.
Pope said the company’s value brands are outperforming its premium brands, as would be expected in the tough economy, but noted foodservice sales are improving. “We’ve seen people migrate back to the restaurants, and it’s not just McDonald’s and Subway and Wendy’s. It’s the regular business that was hit so hard back during the recession.”
Interest in Sara Lee?
Responding to a question about whether Smithfield would be interested in acquiring Sara Lee’s meat business if it became available, Pope said “it does fit in the brand portfolio because we don’t have a lot of breakfast sausage,” but noted other industry players might have a greater interest in doing a deal with Sara Lee.
“Everybody will look at it. We will,” he said. Smithfield is open to acquisitions again after it “unplugged the phone” three years ago, Pope said, “but frankly, good value is hard to come by at this point.”
Smithfield is stepping up its advertising, including tie-ins with Richard Petty Motorsports and Paul Deen. It is also focused on creating new products to stimulate domestic demand, Pope said.
“The one fly in the ointment is the U.S. retail market is not growing,” he noted. “We are not blindly hoping that we can simply take share by some aggressive pricing programs. We’re going to do it the old-fashioned way, by creating new products that consumers want.”
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