Source: MEATINGPLACE, 9/6/13

Smithfield Foods Inc., which in May announced plans to be acquired by Shuanghui International, on Friday reported a sharply lower first-quarter profit due to a weak operating environment for its fresh pork and international businesses.

“Normal seasonal weakness in fresh pork was exacerbated by declines in key export markets, namely Japan, as well as China and Russia,” Smithfield Chief Executive C. Larry Pope said in a statement. “Higher raising costs in our hog production businesses in Eastern Europe and Mexico adversely impacted earnings in our international segment."

But Pope noted that the company’s packaged meats business achieved solid margins and hog production earnings nearly tripled from last year on higher hog prices. He predicted the quarter should mark a low point for the year as Smithfield continues its focus on branded, value-added products.  

Shuanghui deal
Smithfield is awaiting regulatory clearances for its $4.7 billion takeover by China's Shuanghui International Holdings Ltd. Earlier this week, an activist hedge fund said it is working with other potential buyers to come up with a bid that would top Shuanghui’s $34-a-share offer.

However, analysts expect the Shuanghui deal to be completed. “Although Starboard, one of SFD’s largest holders, continues to make noise about SFD leaving money on the table, we think the most likely scenario is that the agreed-upon deal – Shuanghui buying all of SFD – goes through,” JP Morgan analyst Ken Goldman wrote in a note to clients Friday.

First-quarter results
Among its product lines, the company's Smithfield, Armour, Kretschmar, Curly's, Margherita and Carando brands all grew in the first quarter. Smithfield said it took market share in the cooked dinner sausage, dry sausage and marinated pork categories.

The company expanded distribution of its Eckrich cooked dinner sausage, Gwaltney hot dogs, Smithfield bacon, Curly's BBQ, Armour dry sausage, Armour portable lunches and Smithfield and Farmland marinated pork.

Smithfield reported a profit of $39.5 million, or 27 cents a share, in the quarter ended July 28, down from earnings of $61.7 million, or 40 cents a share, a year ago. Sales rose 10 percent to $3.4 billion.
Analysts had expected earnings of 47 cents on revenue of about $3.2 billion, according to Thomson Reuters.

Among its business segments, the operating margin for fresh pork fell to negative 3 percent due to higher hog costs, even as the company processed 4 percent more hogs.

Packaged meats reported a 7 percent operating margin, which was down from last year due to higher raw material costs, particularly for pork bellies. The hog production operating margin was 8 percent as the company sold 6 percent more hogs.

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