Agricultural News
Smithfield Hitting on All Cylinders
Mon, 13 Sep 2010 6:32:56 CDT
Smithfield Foods reported profits in line with analysts’ expectations as reduced pork supplies met strong global demand for pork and despite rising raw material costs.
The Smithfield, Virginia-based company reported a profit of $76.3 million, or 46 cents per share, in its first fiscal quarter of 2011, ended Aug. 1, compared with last year’s first quarter loss of $107.7 million, or 75 cents a share.
Revenues, however, came in lower than analysts were expecting at $2.90 billion, up from $2.72 billion a year ago. On average, Wall Street analysts polled by Thomson Reuters had expected revenues of $3.07 billion.
We have comments from CEO Larry Pope from last week's Conference Call with Analysts- CLICK on the LISTEN BAR below to hear that audio overview.
Fresh pork
Fresh pork margins were strong as all-time high meat cutout values more than offset significant year over year increases in live hog prices and reflected of tightened pork supplies.
Operating margins were 4 percent, or $7 per head, despite a 38 percent increase in live hog market prices and a 6 percent decrease in volume, as the company processed 11 percent fewer head than in the prior year.
Most of the volume decline was the result of closing the Sioux City, Iowa plant in April.
Industry-wide, slaughter volumes were down 3.5 percent and frozen pork supplies were depleted to 72 percent of last year's levels. Lower industry slaughter levels are expected to persist well into Smithfield’s second quarter, the company predicted.
On a conference call, CEO C. Larry Pope said he believes industry hog production expansion has been limited to raising more hogs in existing stalls as raising grain prices remind producers how quickly profits can evaporate.
Export sales dollars increased nearly 19 percent, while export volume declined by 2 percent from last year.
Packaged Meats
Total packaged meats sales grew 5 percent during the quarter to $1.26 billion and operating margins were 5 percent, 11 cents per pound. The company said packaged meats margins held strong despite considerable year over year increases in raw material costs.
Retail sales value increased even as retail sales volumes dipped below last year. Foodservice sales dollars and volumes were both up over last year, the company said.
J.P.Morgan analyst Ken Goldman said in a note to investors he was surprised Smithfield’s packaged meat margins were not better, given strong sales of products like bacon and hot dogs and noting competitors had reported better pork product margins.
Hog Production
Smithfield announced its Hog Production segment now consists solely of U.S. hog production, with international operations reported separately.
Operating margins in the segment improved to $17 per head in the quarter, an improvement of more than $53 per head compared to losses in the same period a year ago.
Fewer hogs marketed increased live hog market prices 38 percent to $58 per hundredweight compared to $42 per hundredweight last year. Pre-interest raising costs decreased to $54 per hundredweight from $58 per hundredweight in the prior year.
Pope said he expects hog production to continue to be volatile due to grain cost fluctuations he attributed to corn-based ethanol. He said Smithfield has cut its exposure to the hog side of the business and does not think it will be as profitable as in the past.
He also told analysts, however, that Smithfield is well hedged against rising corn and soymeal prices for this crop year and into next year.
Outlook
"We will continue to focus on maximizing margins in our Pork segment, despite comparatively higher raw material costs,” said Pope. “The Pork segment will continue to benefit from tight protein supplies, as slaughter levels and freezer stocks continue to be lower year over year. The second quarter is generally a seasonally strong quarter for fresh pork and we expect to deliver solid margins in this segment going forward."
He added he expects the Hog Production segment to continue to be profitable, supported by lower hog supplies.
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