Smithfield Sees Sales Rise

US - US meat and food processing giant Smithfield Foods saw sales for the first quarter of the 2011 financial year rise by seven per cent to were $2.9 billion compared to the first quarter of 2010.
calendar icon 9 September 2010
clock icon 6 minute read

The company has put dow the year on year increase 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 $76.3 million compared to a net loss of $107.7 million last year, an improvement of $184.0 million.

Consolidated operating profit improved to $252.4 million compared to a year ago.

"Fiscal 2011 is off to a great start with record first quarter earnings. The business environment was very favorable in the Pork segment and sharply improved in the Hog Production segment in the first quarter," said C. Larry Pope, president and chief executive officer.

Mr. Pope added: "The hog production cycle has turned and our fresh pork and consumer packaged meats businesses are delivering solid and consistent earnings, owing to the success of the Pork Group restructuring last year and strong discipline in this segment.

"Although the first quarter is generally the most difficult quarter for fresh pork, the company generated very strong fresh pork earnings, bolstered by solid exports and low protein supplies, which created an environment of strong profitability. Overall favorable market dynamics benefited the company in all segments.

"Despite rapidly rising and historically high priced raw materials, we delivered solid results in our packaged meats business led by double digit gains in Curly's BBQ, Off the Bone Lunchmeats, Armour LunchMakers and Kretschmar Deli. These brands and product categories are strategically important as we continue to focus on delivering strong margins in this business," he said.

Fresh pork margins were strong as all-time high meat cutout values more than offset significant year over year increases in live hog prices. High meat values throughout the quarter were reflective of tightened pork supplies.

Operating margins were four per cent, or $7 per head, despite a 38 per cent increase in live hog market prices and a six per cent decrease in volume, as the company processed 11 per cnet fewer head than in the previous year.

The majority of the volume decline was the result of the closure of the Sioux City, Iowa plant in April 2010. Industry-wide, slaughter volumes were down by 3.5 per cent and frozen pork supplies were depleted to 72% of last year's levels. Lower industry slaughter levels are expected to persist well into the company's second quarter.

Export sales in dollars increased by nearly 19 per cent and export volume was strong on a historical basis, and only two per cent less than the prior year.

Packaged meats margins held strong despite considerable year over year increases in raw material costs. Pricing leadership and margin discipline across several important product categories grew overall sales dollars, even as retail sales volumes dipped below last year. Foodservice sales dollars and volumes were both up over last year.

Total packaged meats sales grewby five per cent during the quarter to $1.26 billion and operating margins remained historically strong at five per cent, or $.11 per pound.

Commencing in the first quarter of fiscal 2011, results from the company's international hog production operations in Poland, Romania and Mexico are reported in the International segment.

Previously, results from these operations were reported in the Hog Production segment.

With the change in segment reporting for the company's international farms, the Hog Production segment now consists solely of U.S. hog production.

Operating margins in this segment dramatically improved in the first quarter to $17 per head, an improvement of more than $53 per head compared to the same period a year ago (excluding the effect of last year's $34.1 million impairment charge). Fewer hogs marketed increased live hog market prices 38 per cent to $58 per hundredweight compared to $42 per hundredweight last year. Pre-interest raising costs decreased seven per cent to $54 per hundredweight from $58 per hundredweight in the previous year.

The International segment now includes results from the company's international hog production operations as well as its international meat production operations.

The company's vertically integrated operations in Poland continued to deliver strong results in the first quarter. Lower raw material costs and sharp volume increases in the Polish meat operations combined to substantially improve profitability. Live production raising costs also moderated in Poland compared to the same period a year ago.

Equity income from Campofrio was slightly lower than a year ago, reflecting continuing recessionary conditions throughout Western Europe. Equity income from Mexico was also marginally lower than last year.

Other segment results increased $5.8 million due to improvements at Butterball, LLC and lower costs in the company's turkey grow-out operations.

In June, Smithfield announced that it had made an offer to purchase its joint venture partner's 51% ownership interest in Butterball, LLC and its partner's related turkey production assets for approximately $200 million. In accordance with Butterball's operating agreement, Smithfield's partner may either accept the offer to sell or be required to purchase Smithfield's 49% interest and its related turkey production assets. The company expects to conclude the buy/sell decision this month and close before the end of the calendar year.

"We will continue to focus on maximising margins in our Pork segment, despite comparatively higher raw material costs. 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," said Mr. Pope.

"The Hog Production segment should continue to be profitable, supported by lower hog supplies," he added.

"In closing, we maintain our positive outlook for fiscal 2011. All parts of our business are profitable and we are focused on lowering our Hog Production segment cost model and capitalizing on our restructured Pork Group. All indications are that fiscal 2011 will be an excellent year for Smithfield."

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