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Smithfield Reports Record Results

by 5m Editor
11 March 2011, at 8:40am

US - Smithfield Foods has reported record results for the third quarter of the 2011 financial year with net income reaching $202.6 million.

Consolidated operating profit improved $276.2 million, or $155.6 million after adjusting for a fire insurance recovery gain of $120.6 million.

Sales for the third quarter were $3.2 billion, up 10 per cent. The increase is primarily attributable to higher average unit selling prices in the Pork segment and higher live hog market prices.

The company reported net income in the current quarter of $202.6 million compared to net income of $37.3 million last year, an improvement of $165.3 million.

The current quarterly results include a number of noteworthy items affecting results, including a $120.6 million gain on a fire insurance recovery, a loss of $14.1 million on early extinguishment of debt, charges on the Hog Production cost savings initiative of $10.9 million and a $5.1 million net gain on the sale of various non-core hog farm assets.

"We are extremely pleased with the record performance of the company in the third quarter. Year to date, our earnings have surpassed that of our last record year, owing to the strength of our restructured Pork segment, which has enabled us to fully capitalize on favorable market conditions. Strong global demand for pork, combined with tight supplies, propelled exceptional fresh pork results in the quarter. Smithfield's highly competitive cost structure and coordinated sales and marketing platform allowed us to deliver another solid quarter in our packaged meats business," said C. Larry Pope, president and chief executive officer.

"We accomplished double digit growth in several of our key strategic brands and product categories in the quarter including Armour LunchMakers, Armour Pepperoni, Curly's Barbecue, Kretschmar Deli and Smithfield Marinade," he said.

"Although the third quarter is generally seasonally the weakest quarter for hog production, results in the Hog Production segment improved substantially and were supported by lower hog supplies, higher live hog prices and favorable grain hedges that kept raising costs in the low $50's per hundredweight and in line with the prior year," Mr. Pope continued.

"Over the past two years, Smithfield has made significant improvements to the balance sheet and we are happy to report that we have successfully reduced debt by $913 million this fiscal year, bringing our total debt level to $2.1 billion," he said.

Fresh Pork

Fresh pork margins were excellent, as tight supplies and robust demand drove record high pork cutout values. Operating margins were 12 per cent, or $18 per head, even after absorbing a 12 per cent increase in live hog market prices. Volume decreased four per cent, as the company processed 6 per cent fewer head.

The volume decline was due to the closure of the Sioux City, Iowa plant in April 2010.

Packaged Meats

Packaged meats margins were solid, particularly in the face of considerably higher raw material costs. Total packaged meats sales grew 17 per cent in the quarter to $1.6 billion.

Operating margins were strong at eight per cent, or $.16 per pound, despite the higher raw material costs. Volume decreased two per cent.

Hog Production

Hog Production operating margins improved dramatically. Fewer hogs marketed pushed live hog market prices 12 per cent to $50 per hundredweight compared to $44 per hundredweight last year. Pre-interest raising costs were approximately equal to the prior year at $52 per hundredweight.

International

The International segment continued to deliver strong results, keeping pace with last year. Operating profit from the company's Polish operations decreased as lower live hog prices and higher raising costs pressured margins and more than offset continued record results in meat processing.

The company's Romanian operations were profitable, but earnings were below last year.

Favourable hog production margins drove improved equity income from the company's Mexican operations.

Earnings from Campofrio improved considerably, even after adjusting for a $10.4 million debt restructuring charge in the prior year.

Outlook

"In the Pork segment, Smithfield is intensely focused on continuing to develop its sales and marketing programs and consolidated brand portfolio, as well as further improving its cost structure. This focused approach is creating a more competitive platform for Smithfield every day. We are pleased with our progress; however, there are still significant opportunities to achieve a higher level of operational excellence going forward," said Mr. Pope.

"Industry fundamentals are very encouraging. Solid earnings in fresh pork will continue to be driven by balanced supply and demand dynamics and strong exports, which are likely to continue," he added.

"We anticipate that the Hog Production segment will be profitable in fiscal 2011 and beyond, despite higher grain prices. Even though raising costs will increase going forward, low global red meat inventories are supporting a significantly higher live hog futures curve throughout fiscal 2012. Furthermore, the Hog Production Cost Savings Initiative will improve our cost structure $90 million annually by fiscal 2014," Mr. Pope said.

"As previously stated, we are encouraged by the recent change in the tone of the conversation surrounding the current ethanol policy by the Obama administration and others in the private and public sectors. We are hopeful that this is the result of the realization that this policy raises food prices and hurts those in America who can least afford it. We applaud this move toward a more rational energy policy," he continued.

"We continue to improve our conservative balance sheet, while maintaining ample liquidity, and will substantially reduce our annual interest expense run rate," Mr. Pope remarked.

"Given the overall situation, we remain very excited about the growth prospects for this company in all business segments and expect to finish this fiscal year with record earnings and look forward to continued strong results in fiscal 2012," he concluded.