SMITHFIELD, Va. – Declining exports in key markets combined with higher costs for hog raising caused a 36 percent drop in Smithfield Foods Inc.'s first quarter earnings for fiscal 2014.
For the quarter ended July 28, Smithfield reported a profit of $39.5 million, or 27 cents per diluted share, compared with a profit of $61.7 million, or 40 cents per diluted share a year ago. The company said its international operating margins declined to 1 percent on higher feed costs.
"The operating environment in fresh pork and our international business was difficult in the first quarter," said C. Larry Pope, Smithfield CEO. "Normal seasonal weakness in fresh pork was exacerbated by declines in key export markets, namely Japan, as well as China and Russia. Higher raising costs in our hog production businesses in Eastern Europe and Mexico adversely impacted earnings in our international segment."
Sales for the quarter advanced 10 percent to $3.4 billion. Smithfield, Kretschmar, Margherita and Carando brands saw growth in the quarter, the company said, while the Armour and Curly's brands posted double-digit growth. The company gained market share across the cooked dinner sausage, dry sausage and marinated pork categories. Distribution expanded for Eckrich cooked dinner sausage, Gwaltney hot dogs, Smithfield bacon, Curly's BBQ, Armour dry sausage, Armour portable lunches and Smithfield and Farmland brand marinated pork.
"The key driver of our business continues to be packaged meats where we achieved solid margins, while growing volume, as well as market share and distribution across a number of our core brands and product categories in the first quarter," Pope said.
Fresh pork operating margins shrank 3 percent to $5 per head on higher hog costs that weren't passed on through higher prices or exports. Operating margins in the Packaged Meats business declined on higher raw material costs, especially pork bellies, according to the company. Volume in the segment grew 2 percent. Operating margins in Hog Production were at 8 percent, or $17 per head. Smithfield sold 6 percent more hogs.
"The first quarter should mark the low point of the year for Smithfield," Pope said. "We will continue to execute on our long-term strategic growth plan, focused on improving our earnings stream and migrating Smithfield further towards a consumer packaged meats company."
Going forward the company plans to focus on increased consumer marketing, product innovation and capital investment. Pope said the company will used its integrated platform to move its product mix toward differentiated, branded and value-added products, both domestically and in exports.
Smithfield, which has recently discontinued earnings conference calls, still awaits a ruling on its buyout by Shuanghui International Holdings Ltd. from the Committee on Foreign Investment in the US. Activist shareholder Starboard Value LP, a New York hedge fund, plans to vote against the proposed acquisition because the company is organizing an alternative bid for Smithfield.