Low hog prices weigh on Smithfield Foods results

by Erica Shaffer
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SMITHFIELD, Va. – Pork processor Smithfield Foods reported a 19 percent decline in net income for 2015 due to lower prices for live hogs.

Operating profit in the company’s Hog Production business dropped $324.5 million on lower live hog market prices. Smithfield explained the results reflect an oversupply situation that occurred when the United States’ hog herd recovered from an outbreak of Porcine Epidemic Diarrhea virus (PEDv). However, the result partially was offset by favorable hedging results and lower feed costs.

For the 12 months ended Jan. 13, 2016, net income at Smithfield Foods was $452.3 million compared with $556.1 million reported in 2014.

Operating results on a segment basis included an increase of $80.6 million in the company’s Fresh Pork operating profit, which the company attributed to lower hog prices which more than offset the impact of lower meat values.

Operating profit in the Packaged Meats segment advanced to a record $673.3 million on lower raw material costs and higher sales volume which was partially offset by lower average selling prices.

“Our most exciting growth prospect is the ongoing development of our packaged meats business,” Smithfield said in an earnings release. “Although we have experienced meaningful and consistent improvement in packaged meats margins, we believe significant growth potential remains.”

Smithfield will continue to strengthen the company’s consumer-focused marketing programs while driving innovation in Smithfield’s product mix toward banded and value-added products. “We expect these actions to result in continued and broad-based gains in packaged meats sales, volume, market share, distribution and margins.”

Foreign currency translation, a stronger US dollar and lower market prices for pork in Europe and Mexico dragged down operating profit by $89.7 million in the company’s International segment.

Finally, corporate expenses advanced $17.7 million on higher stock-based compensation expenses and charitable contributions.

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