Smithfield's 2Q net income down, sales up

by Bryan Salvage
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SMITHFIELD, Va. – Net income for Smithfield Foods Inc. second quarter of fiscal 2012 was $120.7 million ($.74 per diluted share) compared to $143.7 million ($.86 per diluted share) the same quarter last year. EPS was $.74. Sales of $3.3 billion were up 10 percent, primarily due to higher average unit selling prices and volumes in its Pork segment.

“Our Farmland, Smithfield, Armour and Curly's brands all achieved double-digit retail sales and volume growth in the quarter," said Larry Pope, president and CEO. "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.”

Smithfield introduced several new products during the second quarter, including Armour Active Packs, Eckrich Bacon Covered Deli Ham, Farmland Re-sealable Thick Sliced Bacon and Smithfield PouchPack Bacon. Last year, the company reduced the sodium in its Smithfield Marinated Pork.

“Our core brands outperformed in many of our strategic product categories to post strong 5 percent volume growth, even as industry volumes declined,” Pope said.

Pork exports were fueled by strong gains in shipments to Asia.

Fresh pork operating margins for the second quarter were 7 percent, or $14 per head, but declined slightly from the prior year as a 22 percent increase in live hog market prices more than offset a 14 percent improvement in the US Department of Agriculture pork cutout. Above normalized margins reflected surging export demand and steady domestic supplies. Sales tonnage and head processed increased 3 percent and 2 percent, respectively.

Despite a significant increase in raw material costs Packaged Meats operating margins were at 5 percent, or $.11 per lb. Sales increased 7 percent to $1.5 billion, as average unit selling prices increased 6 percent and sales tonnage increased 1 percent. Volume of the company's core brands increased 5 percent, driven by increases in several categories, including bacon, hams, and sausage.

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.

Pope said moving into the second half of fiscal 2012, the company anticipates global demand for pork will remain strong, which should fuel strong fresh pork profitability.

"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 percent volume growth. We expect that fiscal 2012 will be another very strong year for Smithfield," Pope concluded.

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