June 15, 2012

 

 

Smithfield Foods Inc. reports a fourth-quarter profit decline by 19% on lower fresh pork margins, rising hog supplies and soft domestic retail demand.

 

"Management is disappointed with the fourth-quarter results, specifically fresh pork and hog production," Smithfield Chief Financial Officer, Bo Manly, said on a conference call. "Well, what happened? The normal seasonal improvement in cut-out and fresh pork results and lift to the live hog prices in futures always seemed just beyond our grasp."

 

Mild weather accelerated hog growth rates and increased supplies, which pressured cut-out values and live hog prices, Manly said. The pink slime issue pulled down beef and pork trimming values, US$4 per gallon gas prices drained consumers' wallets, and retailers reduced pork featuring activities, slowing sales tonnage, he added.

 

But company officials stressed that Smithfield's export business remains robust and packaged meat sales continued to be strong in the quarter. Smithfield also announced a new share buyback authorisation of US$250 million, after buying nearly that amount of stock over the past year.

 

Smithfield Chief Executive, C. Larry Pope, characterized the weaker-than-expected quarter as a "blip on the radar screen," and he took aim at a Wall Street Journal article that likened the company's stock to a "discounted pork chop that is past its sell-by date."

 

Pope said he hopes the Journal writer writes another article down the road. "Let's see if he has the same thing to say," he said.

 

"A few hogs over a warm winter came to market a little earlier in March and April. Our outlook for the year is still darn good. So, from my standpoint, the company is a buyer, and we've been an aggressive buyer the whole year … and we're announcing this morning that we're a buyer again," Pope said.

 

Excluding special items, the company earned 43 cents per share. Analysts had expected 53 cents a share, according to Thomson Reuters.

 

Net sales rose 3% to US$3.21 billion in the quarter, below the average analyst estimate of US$3.26 billion.

 

In the fresh pork business, the company's operating profit margin in the quarter fell to 1%, down from 10% a year earlier. The company said an 11% drop in the USDA pork cut-out accounted for the majority of the decline, as live hog prices were little unchanged. The company processed 4% more hogs, while industry slaughter levels were 2% higher.

 

In packaged meats, the operating profit margin rose to 7% from 5% a year ago. Smithfield said it gained market share in product categories, including bacon and hot dogs. It expanded distribution in BBQ, deli meats, dry sausage, ham steaks and portable lunches and grew sales and volume in its Armour, Farmland and John Morrell brands.

 

The hog production operating profit margin dropped to 5% from 12%.  The company said live hog market prices decreased 1% while raising costs rose to US$65 per hundredweight from US$57 per hundredweight.