Source: Rita Jane Gabbett, MEATINGPLACE, 8/15/18


Smithfield Foods parent WH Group reported worse-than-expected results for the first half of the year as its U.S. operation suffered from trade tensions between the United States and China.

WH Group Chairman Wan Long said the world’s largest pork company has boosted its U.S. exports to Japan, South Korea and Mexico to reduce the impact of the trade spat between Washington and Beijing, Reuters reported. 

Reuters quoted Smithfield Chief Executive Kenneth Sullivan as telling reporters Smithfield’s pork shipments to South Korea jumped as much as 50 percent in the first six months of the year and those to China, the world’s largest consumer, fell by 20 to 30 percent.
"For exports to China, even without incremental tariffs, the surging domestic production (in the U.S.) pressured hog prices and lowered the competitiveness of U.S. pork," the company stated in its earnings report. 

In the first half of the year, WH Group reported the financial contribution of its U.S. operations fell to 58.7 percent of revenues from 60.3 percent in the same period a year ago. The U.S. contribution to operating profit fell to 38.1 percent from 52.4 percent a year ago.  

“If the trade war ends soon, we won’t be impacted much, but if it lasts longer, we will speed up the adjustment (in exports),” Wan was quoted as saying during the briefing with reporters. 

The company reported a 7.7 per cent drop in net profit to $514 million from $557 million in the year-earlier period as its U.S. and European operations were hurt by lower margins.

Revenue reached $11.17 billion, up 4.8 per cent from $10.66 billion after biological fair value adjustments, which measures the value of biological assets including living plants and animals. The first-half revenue was lower than a Bloomberg analyst consensus estimate of $11.24 billion, according to the South China Morning Post.

Fresh pork
WH Group’s operating profit of fresh pork in the first half of the year decreased to $93 million from $245 million a year ago as the decline in operating profit in the United States largely exceeded the increase in operating profit in China and Europe.

In the United States, the company recorded an operating loss of $15 million during the period, reflecting “extremely unfavorable market conditions in the U.S., including the high level of pork supply in the nation driven by industry expansion, as well as the weak exports to China driven by the narrowed hog price differential and incremental tariffs imposed by China on U.S. pork.”

Oversupply and trade disruptions depressed U.S. pork prices to a greater degree than the price of hogs and led margin erosion, the company said, noting the increase in labor wages and logistics costs “added further challenge to our operation.”

In contrast, WH Group achieved significant growth in China and Europe. In China, the increase in operating profit was 111.1 percent, mainly due to increased sales volume and better facility utilization. In Europe, operating profit grew primarily due to favorable pricing and increased volume.

Shuanghui Development
For the six months ended June 30, 2018, Chinese pork processor Shuanghui Development (which is 73 percent owned by WH Group) processed 8.27 million hogs, representing an increase of 30.42 percent from the comparable period of 2017.
WH Group’s Hong Kong-listed shares have fallen by more than 35 percent since China first threatened U.S. pork import tariffs.

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