Takeover costs drag on Smithfield’s transitional income

by Meat&Poultry Staff
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SMITHFIELD, Va. – Smithfield Foods Inc. reported net income of $86.6 million for the eight months ended Dec. 30, 2013. This compares to $130.0 million during the comparable time frame in 2012.

Costs associated with its takeover by Hong Kong-based WH Group, formerly known as Shuanghui International Holdings Ltd., and weak performance in the company's pork and international segments dragged on earnings.

Smithfield Foods filed a "Transition Report" on its Form 10-K for the period from April 29, 2013 to Dec. 29, 2013 with the Securities and Exchange Commission.

Pork Segment operating profit fell $177.5 million on a jump in domestic live hog prices that were only partially offset by higher packaged meat prices and higher fresh meat market prices, the company reported.
Operating profit for the company's International Segment dropped $97.2 million on higher hog raising costs and lower average selling prices.

Smithfield's Hog Production Segment recorded an increase in operating profit of $97.2 million. The company attributed the gain to higher domestic live hog prices.

The impact of the spread of Porcine Epidemic Diarrhea virus clouded the company's outlook.

"Our herds in several regions in which we operate are affected as PEDv continues to spread throughout the US," the company noted in its filing. "We are subject to risks related to our ability to maintain animal health and control PEDv. We are unable to predict the extent the disease will impact our operations or market prices in the future."

But despite the specter of PEDv, the company expressed optimism for its performance in 2014:

"The outlook for calendar 2014 is much improved over 2013. Improving markets, synergistic effects from the strategic merger with WH Group, improving export opportunities, operational improvement plans in place at both the plant and farm levels and organic growth targets should provide tailwinds for improved operating performance over the next 12 months.

"Early in calendar 2014, the threat of lower pork supplies, largely attributable to PEDv, has resulted in record or near record prices up and down the entire pork value chain in the United States. While PEDv will result in lower numbers of pigs produced in our Hog Production segment, we expect higher domestic live hog prices will more than offset any volume reductions and will result in strong segment profits. We expect a return to normalized operating margins within the Pork and International segments, notwithstanding significantly increased live hog prices and higher meat cost for our packaged meats businesses."
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