Smithfield reports strong Q1 results
by Joel Crews
SMITHFIELD, Va. – With China’s WH Group Limited’s blockbuster acquisition of Smithfield Foods, Inc. behind it, C. Larry Pope, Smithfield’s president and CEO said the merger is a big part of Smithfield’s success in its 2014 fiscal first quarter, ended March 30, 2014. Net income spiked to $105.3 million during the quarter compared to $18.2 million during the same period last year, on sales of $3,422.1 million vs. $3,326.9 million in the first quarter of 2013, an increase of 3 percent. Overall, operating profit and margins were higher across all of Smithfield’s business units, led by the profitability of its Fresh Pork segment. With sales of $1,387 million this year vs. $1,187.2 million in 2013, the segment’s profitability increased 171 percent, to $59 million.
According to Pope, the benefits of the merger with WH Group are readily apparent.
“Our results reflect outstanding execution at the operating level, better markets and an improved export environment owing, in good measure, to our strategic combination with WH Group,” he said. “On that front, we are opportunistically pursuing exciting growth opportunities in the enormous and rapidly growing Chinese pork market that we expect will yield dividends for years to come." He added: "All indications are that 2014 will be a very strong year for the company and the strategic merger with WH Group should yield benefits that will continue far into the future."
Despite the widespread impact of Porcine Epidemic Diarrhea virus (PEDv) that has resulted in the deaths of more than 7 million hogs throughout 30 US states, Smithfield’s hog production operating profit increased to $9.5 million. "Hog production volumes will be lower due to PEDv, pushing hog and pork prices higher. The combination of lower corn costs and higher hog prices will generate very strong hog production margins,” Pope said.
The International segment led profit gains at $36.9 million, up by 158 percent.
Smithfield’s Packaged Meats segment sales declined to $1,548.5 million, down 9 percent from $1,594.5 million during the first quarter of 2013, due mostly to a later-than-usual Easter holiday that led to lower volumes of ham sales, which were offset by a 20 percent increase in sales of Smithfield bacon. Operating profit for the segment increased to $121.2 million, 13 percent over the same period last year.
Hog Production operating margins rose to 1 percent, or $2 per head as sales topped $849.5 million vs. $834 million during last year’s first quarter. Year over year, live hog market prices increased 16 percent to $71 per hundredweight, while raising costs declined 4 percent to $65 per hundredweight. Smithfield sold fewer, but heavier market weight hogs. The company continued to manage risks in light of the current market challenges, including PEDv, which is resulting in production declines across the industry.
Operationally, Pope mentioned the benefits of the recent combining of two of the company’s subsidiaries: Smithfield Packing Company and Farmland Foods. The merger, he says, “is improving our competitiveness and we are continuing our drive to achieve least cost and best- in-class operations."
In terms of Smithfield’s access to the market in China and how it benefits the company, Pope said: "We will continue to leverage our vertically integrated platform to supply high quality, ractopamine-free pork to Shuanghui in China, while continuing to meet the needs of our domestic customers. In addition, we now have access to the largest cold chain logistics network in China, as well as a robust sales and distribution network, both owned by Shuanghui. We can utilize these networks to service Smithfield customers globally. This market access in China is second to none and represents an enormous growth opportunity for Smithfield."