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Smithfield profit down on weak fresh pork margins
Story Date: 6/15/2012
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Source: MEATINGPLACE, 6/14/12
Smithfield Foods Inc. said its fourth-quarter profit fell 19 percent, hurt by lower fresh pork margins, increased hog supplies and soft domestic retail demand. The company’s shares fell 6 percent in morning trading.
“Management is disappointed with the fourth-quarter results, specifically fresh pork and hog production,” Smithfield Chief Financial Officer Bo Manly said on a conference call. “Well, what happened? The normal seasonal improvement in cutout and fresh pork results and lift to the live hog prices in futures always seemed just beyond our grasp.”
Mild weather accelerated hog growth rates and increased supplies, which pressured cutout values and live hog prices, Manly said. The pink slime issue pulled down beef and pork trimming values, $4-a-gallon gas prices drained consumers’ wallets, and retailers reduced pork featuring activities, slowing sales tonnage, he added.
But company officials stressed that Smithfield’s export business remains robust and packaged meat sales continued to be strong in the quarter. Smithfield also announced a new share buyback authorization of $250 million, after buying nearly that amount of stock over the past year.
Smithfield Chief Executive C. Larry Pope characterized the weaker-than-expected quarter as a “blip on the radar screen,” and he took aim at a Wall Street Journal article that likened the company’s stock to a “discounted pork chop that is past its sell-by date.”
Pope said he hopes the Journal writer writes another article down the road. “Let’s see if he has the same thing to say,” he said.
“A few hogs over a warm winter came to market a little earlier in March and April. Our outlook for the year is still darn good. So, from my standpoint, the company is a buyer, and we've been an aggressive buyer the whole year … and we're announcing this morning that we're a buyer again,” Pope said.
Smithfield reported net income of $79.5 million, or 49 cents per share, in the fiscal fourth quarter ended April 29, down from $98.4 million, or 59 cents per share, a year earlier.
Excluding special items, the company earned 43 cents per share. Analysts had expected
53 cents a share, according to Thomson Reuters.
Net sales rose 3 percent to $3.21 billion in the quarter, below the average analyst estimate of $3.26 billion.
In the fresh pork business, the company’s operating profit margin in the quarter fell to 1 percent, down from 10 percent a year earlier. The company said an 11 percent drop in the USDA pork cutout accounted for the majority of the decline, as live hog prices were little unchanged. The company processed 4 percent more hogs, while industry slaughter levels were 2 percent higher.
Exports remained strong, resulting in a13 percent increase in company shipments.
In packaged meats, the operating profit margin rose to 7 percent from 5 percent a year ago. Smithfield said it gained market share in product categories including bacon and hot dogs. It expanded distribution in BBQ, deli meats, dry sausage, ham steaks and portable lunches and grew sales and volume in its Armour, Farmland and John Morrell brands.
The hog production operating profit margin dropped to 5 percent from 12 percent. The company said live hog market prices decreased 1 percent while raising costs rose to $65 per hundredweight from $57 per hundredweight.
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