Smithfield 1Q net income, sales up

by Meat&Poultry Staff
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SMITHFIELD, Va. – Smithfield Foods Inc. announced fiscal 2012 1Q net income was $82.1 million, or $.49 per diluted share, including a $39.0 million pre-tax litigation charge, compared to net income of $76.3 million ($.46 per diluted share) last year; adjusted EPS was $.69 per diluted share, an improvement of $.23, or 50 percent. Sales for the quarter were $3,094.2 million compared to $2,901.3 million during the same period last year, largely due to higher average unit selling prices in the Pork segment and higher live hog market prices.

"The record performance of our business for the past five quarters is the direct result of the successful execution of our strategy to position Smithfield as a leading packaged meats company by increasing customer-focused marketing of our core brand portfolio, improving our overall cost structure and fortifying our balance sheet, plus the benefit of favorable industry conditions," said C. Larry Pope, president and chief executive officer.

"We are supporting our packaged meats business by boosting our sales and marketing budget to activate our brands and fuel innovation to bring us closer to our consumers. This is promoting growth and strengthening our position in many important product categories, including bacon, dinner sausage, hotdogs and portable lunches.

"Notably, sales volume and dollars expanded for all of our 12 core brands in the first quarter: Farmland, Smithfield, Eckrich, Armour, John Morrell, Cook's, Gwaltney, Kretschmar, Curly's, Carando, Margherita, and Healthy Ones. In addition, our Armour LunchMakers, Curly's Tub BBQ, Eckrich Hotdogs and Smoked Sausage, Kretschmar Deli, and Smithfield Marinated lines posted double-digit growth," Pope said.

Low global protein inventories continued to support historically high live hog prices. “This strong pricing environment, combined with profitable hedge positions, generated robust hog production profitability that was well above the normalized range, despite higher cash grain prices,” he added.

Fresh pork operating margins were at the high end of normalized range at 3 percent, or $6 per head, despite a 19 percent increase in live hog market prices. Results were bolstered by stable protein supplies and solid exports. Sales tonnage and head processed decreased 2 percent.

Packaged meats operating margins were above the normalized range at 8 percent, or $.17 per lb., despite a double-digit increase in raw material costs. Margins continued to benefit from lower overhead costs and increased operating efficiencies. Sales increased 6 percent to $1.3 billion, as average unit selling prices rose 8 percent. Sales tonnage decreased 1 percent; however, the company successfully grew the retail packaged meats volume of its 12 core brands, driven in large part by increases in hot dogs, lunchmeat, prepared foods and smoked sausage. Sales of the company's 12 core brands increased 9 percent in dollars and 3 percent in volume.

Hog Production operating margins, adjusted for the litigation settlement and impairments, were at 14 percent, or $29 per head.

Operating profit in the International segment was down in both Europe and Mexico. Recessionary conditions coupled with higher raw material prices in hog production and meat processing operations pressured margins in the segment.
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