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Smithfield Reports Robust Pork Earnings in Q2

by 5m Editor
9 December 2011, at 5:56am

US - Smithfield Foods' sales for the second quarter of fiscal 2012 were $3.3 billion, up 10 per cent, resulting from higher average unit selling prices and volumes in the pork segment.

The company reported net income in the current quarter of $120.7 million ($.74 per diluted share) compared to net income of $143.7 million ($.86 per diluted share) last year.

For the second quarter, EPS of $.74 included a $.02 per diluted share charge for the early extinguishment of debt. Excluding this charge, adjusted EPS was $.76 on a non-GAAP basis. Last year's second quarter included a number of noteworthy items which, when adjusted, resulted in non-GAAP EPS of $.80 per diluted share.

C. Larry Pope, president and chief executive officer, said: "Our business is thriving and we are proud to deliver yet another quarter of quality and consistent earnings to our shareholders led by strong results in our Pork segment.

"Importantly, we were able to grow the top line in our packaged meats business in the second quarter — while exhibiting strong pricing discipline to maintain margins in the normalized range — by leveraging our closely coordinated sales and marketing platform to expand share and distribution. Our Farmland, Smithfield, Armour and Curly's brands all achieved double-digit retail sales and volume growth in the quarter.

"We continue to activate our core brands with integrated direct-to-consumer advertising campaigns and we are fueling growth with the launch of innovative products that are focused on satisfying the needs of our consumers. This quarter, we successfully introduced several new products into the marketplace including Armour Active Packs, Eckrich Bacon Covered Deli Ham, Farmland Re-sealable Thick Sliced Bacon, and Smithfield PouchPack Bacon. Last year, we also reduced the sodium content in our Smithfield Marinated Pork, which resulted in another quarter of solid sales and volume growth. Our core brands outperformed in many of our strategic product categories to post strong 5 per cent volume growth, even as industry volumes declined. We are happy to report that our brands are demonstrating a strong pipeline for innovation and brand activation.

"Our fresh pork and hog production businesses continued to benefit from a balanced domestic supply and demand dynamic, as well as very strong exports. Pork exports continued their upward trajectory, fueled by strong gains in shipments to Asia. Although we were disappointed in the performance of our international businesses, we were pleased with the sequential improvement in that segment from last quarter in the face of continued high raw material costs and soft demand in Europe.

"A significant reduction in interest expense, as well as cost savings and operational improvements also had a positive impact on results. In addition, we continued to utilize cash to repurchase 3 per cent of our outstanding shares and repay $115 million of long-term bonds year to date."

Second Quarter Results

Fresh Pork

Fresh pork operating margins were well above the normalized range at 7 per cent, or $14 per head, but declined slightly from the prior year as a 22 per cent increase in live hog market prices more than offset a 14 per cent improvement in the USDA pork cutout. Above normalized margins continued to reflect surging export demand and steady domestic supplies. Sales tonnage and head processed increased 3 per cent and 2 per cent, respectively.

Packaged Meats

Packaged meats operating margins were in the normalized range at 5 per cent, or $.11 per pound, despite a significant increase in raw material costs. Margins were in line with last year and sales grew 7 per cent to $1.5 billion, as average unit selling prices rose 6 per cent and sales tonnage increased 1 per cent. Notably, volume of the company's core brands grew 5 per cent, driven by increases in several key product categories, including bacon, hams, and sausage.

Hog Production

Hog Production operating margins were above the normalized range at 8 per cent, or $16 per head. Live hog market prices increased 22 per cent to $69 per hundredweight from $56 per hundredweight last year, while pre-interest raising costs increased 20 per cent to $64 per hundredweight from $54 per hundredweight a year ago. Head sold decreased 7 per cent, largely attributable to the sale of the company's hog production operations located in Texhoma, Oklahoma in January 2011.

International

International segment operating profit declined versus the prior year, but improved from the first quarter of fiscal 2012. Recessionary conditions resulted in soft demand year over year, while significantly higher raw material prices could not be fully passed through to customers.

Outlook

Mr Pope said: "Moving into the second half of fiscal 2012, we anticipate that global demand for pork will remain robust, which should fuel strong fresh pork profitability. At the same time, we expect to sustain solid fundamentals in our hog production business. Our international business is trending in the right direction, and we expect to see better results in that segment going forward.

"Most importantly though, we are encouraged by the momentum we are building in our packaged meats business and will continue to execute our strategy to position Smithfield as a leading packaged meats company. We remain focused on achieving our targeted 3 per cent volume growth by increasing customer-focused marketing and strengthening our innovation pipeline, while exercising strong pricing discipline and focusing on operational improvements to maintain consistent margins.

"We expect that fiscal 2012 will be another very strong year for Smithfield."