Packaged meats sales lift Smithfield earnings

by Erica Shaffer
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Smithfield butcher's cut bacon
Smithfield earnings soared on strong demand for bacon and other packaged meats.

Smithfield Foods, Inc. reaped the power of packaged meats as the company reported a record financial performance for 2014.

“Our record earnings underscore Smithfield's evolution into a branded packaged meats company,” Larry Pope, president and CEO, said in a statement. “We made significant progress on a number of fronts this year across all of our divisions and I am proud to report that we continued to strengthen our marketing and brand building efforts to drive product mix improvements, while maximizing our manufacturing platform to operate more efficiently.”

Pope added that operating efficiencies and product mix improvement enabled the company to deliver volume, market share and distribution gains across a number of its brands and strategic product categories, despite high raw material costs. He noted that the company's performance in the bacon category with the Smithfield brand was particularly robust.

Sales surged 10 percent to $2.2 billion in the company's Packaged Meat segment. Smithfield attributed the result to growth in retail, foodservice and export sectors. Retail sales volume and dollars climbed for the company's Smithfield, Eckrich, Cook's, Kretschmar and Carando brands.

Several Smithfield brands continued to gain market share, the company noted. Top performers included Smithfield bacon, Smithfield ham steaks, Smithfield marinated pork, Eckrich cooked dinner sausage, Gwaltney packaged lunchmeat, Gwaltney hot dogs, Kretschmar deli meats and Margherita dry sausage.

The company also expanded distribution of its Smithfield bacon, Smithfield ham steaks, Smithfield marinated pork, Eckrich cooked dinner sausage, Farmland ham steaks, Gwaltney packaged lunchmeat, Nathan's hot dogs and Margherita dry sausage.

Operating margin in Smithfield's Fresh Pork segment declined to 2 percent, or $3 per head. The USDA pork cutout rose 8 percent, reflecting tight supplies of pork and strong demand. The company processed 7 percent fewer hogs, which was attributable to porcine epidemic diarrhea virus (PEDv).

“PEDv has not been a major issue this fall, but the virus does remain a potential wildcard going forward,” Pope said. “We expect US market hog supplies to rebound in 2015, although lower prices and reduced energy costs should generate additional demand in the export markets, as well as domestically. Lower pork prices should also allow us to leverage additional synergistic opportunities with WH Group and Shuanghui, our sister company in China.”

Hog Production operating margin advanced to 10 percent, or $23 per head. Smithfield said tailwinds for results included the positive effect of PEDv on live hog prices combined with lower input costs. Year over year, live hog market prices jumped 20 percent to $79 per hundredweight, while raising costs declined 6 percent to $64 per hundredweight. Sales of hogs dropped 10 percent, but heavier market weights offset some of the shortfall, the company said.

Looking forward, Pope said Smithfield is sharply focused on growth, and the company is in an ideal position to deliver strong results in 2015.

“With the launch of our recently announced organizational realignment, we are taking steps to build on our record results in 2014 as we continue to solidify Smithfield's position as a global leader in branded packaged meats,” he said. Our organizational realignment is about growth and harmonization and we commit to further evolving the company without closing any locations or reducing our workforce.”

Overall, Smithfield reported fourth quarter net income of $152.6 million, compared to $34.7 million a year ago. Revenues advanced 5 percent to $4.1 billion. Full-year results for the company included record net income of $556.1 million and sales of $15 billion, an increase of 8 percent.

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