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Smithfield Reports Record Results

by 5m Editor
17 June 2011, at 11:21am

US - Meat processing giant, Smithfield Foods, has reported a fourth consecutive quarter of record year-on-year earnings with consolidated operating profit improved by $227 million and the pork segment producing a record fourth quarter operating profit.

Net income for the quarter was $98.4 million, an improvement of $103 million and over the whole year there was a $622 million rise to $521 million.

Pork earnings rose by 77 per cent in the fourth quarter with fresh pork operating profit improving by $106 million and packaged meats results remaining strong at $80 million.

The Hog Production segment operating results also increased by $171 million. The company reported continued strong export demand, particularly from Asian markets.

Consolidated sales increased by seven per cent in the quarter to $3.1 billion.

Consolidated operating profit for the whole year improved by more than $1 billion with the pork segment produced record operating profit for the fourth consecutive year.

Pork earnings for the year were up by 40 per cent with fresh pork operating profit improving by $345 million and packaged meats results strong at $347 million. Hog Production segment operating results increased by $764 million.

Consolidated sales rose by nine per cent to $12.2 billion.

"Fiscal 2011 was an outstanding year for Smithfield and I applaud the remarkable performance of our employees in producing these results. This year's earnings far exceeded those of our last record year and demonstrated an important shift in the key drivers of our business model toward consumer packaged meats, as more than two-thirds of our profits were generated by the Pork segment," said C. Larry Pope, president and chief executive officer.

"Industry fundamentals were very supportive of record profitability in fiscal 2011. Strong global demand for pork, coupled with tight supplies, generated record margins in our fresh pork business. At the same time, Hog Production segment earnings improved significantly, as lower hog inventories boosted live hog market prices and favorable grain hedges yielded raising costs in the mid $50s per hundredweight for the year," he added.

"In addition, we continued to leverage our restructured Pork Group to effectively maintain pricing and deliver normalized margins in our packaged meats business despite substantial increases in raw material costs. This year we accomplished double digit growth in several of our key strategic brands and product categories including Armour LunchMakers, Curly's Barbecue, Kretschmar Deli and Smithfield Marinade," Mr Pope said.

"Last year we initiated a plan to improve our balance sheet and we are pleased to report that we have largely achieved the goals set forth in that plan. Over the past year, we utilized cash to repurchase nearly $1 billion in debt, negotiated new revolving credit facilities to significantly reduce interest expense, extended and smoothed maturities, and improved our credit metrics, while ensuring ample liquidity.

"Looking forward to fiscal 2012, we expect to improve our packaged meats business and are committed to maintaining strong pricing discipline to deliver margins in our normalised range. One of our top priorities this year is to achieve profitable top line growth in our consumer packaged meats business, which will be fueled by increased consumer marketing of our key brands. Balanced supply and demand and strong exports should yield solid fresh pork margins, although we anticipate that profitability will return to more normalised levels. Given these factors, overall Pork segment profitability should continue to be robust in fiscal 2012," Mr. Pope said.

"Furthermore, continued low global protein inventories are supporting a higher hog futures curve and yielding hog production profitability in fiscal 2012, despite higher grain prices that will push raising costs into the mid $60s per hundredweight. In addition, the Hog Production Group cost savings initiative is well underway and should improve our long-term cost structure.

"Having considerably improved our balance sheet, we expect to achieve significantly lower year over year interest expense as well," Mr. Pope added.

"Today we also announced that our board of directors has approved a $150 million share repurchase program. This decision underscores our commitment to drive value growth for our shareholders, coupled with our belief that our current stock price does not accurately reflect the earnings power of our business.

"Given this outlook, we believe that Smithfield is well positioned as a more efficient, less leveraged, more highly focused organization to deliver another very strong year to our shareholders in fiscal 2012," Mr. Pope concluded.