Smithfield Foods posts Q3 profit
Oct. 27, 2016
by Erica Shaffer
Higher volumes in packaged meats and fresh pork contributed to a record performance for Smithfield.
SMITHFIELD, Va. – Smithfield Foods’ packaged meats and fresh pork businesses provided tailwinds for the company’s earnings performance during the third quarter.
“The bottom line is our momentum is forward-leaning,” Ken Sullivan, president and CEO, told analysts during an earnings call on Oct. 26.
Net income for the third quarter was $ 143.8 million compared to net income of $83.3 million for the third quarter of 2015.
Total segment sales were $4,067.5 million compared to $3,966.2 million. Consolidated sales, which include segment sales and intersegment sales, were $3,538 million compared to $3,406.1 million.
Packaged Meats operating profit for the third quarter ended Oct. 2 increased by $24.5 million to $136.8 million primarily as a result of higher selling prices and volumes. Sales in the segment were $1,682.9 million for the quarter compared to $1,630.6 million reported in the third quarter ended Sept. 27, 2015.
Sullivan attributed the result to strong performance across brands. “Our Smithfield volume is up 6.9 percent; our Smithfield bacon achieved a record-high ACV [All-commodity volume] of 76 percent. Our Eckrich brand was up 5 percent in the quarter; smoked sausage ACV was over the 80 percent mark. Nathan’s was its highest-ever ACV which was at 95 percent, and that continues to be the number one premium hot dog brand with an 18 or 19 percent share.”
Sullivan added that the company’s Armour brand also had higher volumes during the quarter led by LunchMakers and new product launches from Armour-brand sliders and meatballs with sauce.
“Our most exciting growth prospect is the ongoing development of our packaged meats business,” the company said in its earnings release. “Although we have experienced meaningful and consistent improvement in packaged meats margins, we believe significant growth potential remains. We will continue to strengthen our consumer-focused marketing programs and promote innovation to improve our product mix toward branded, value-added products. We expect these actions to result in continued broad-based gains in packaged meats sales, volume, market share, distribution and margins.”
On a segment basis, Fresh Pork operating profit increased by $62.6 million to $76.7 million primarily due to lower live hog market prices resulting from higher hog supplies in the United States. Sales for the quarter were $1,286.2 million compared to 1,210.8 million in 2015.
Glenn Nunziata, CFO, said fresh pork was a huge profit driver for Smithfield in spite of volumes remaining flat and selling prices declining.
“The story here is simple,” he said. “The value of meat cuts continues to significantly outpace our raw material costs.”
Hog Production operating results decreased by $12.6 million to $34.5 million. The company attributed the decline to lower live hog market prices, which were partially offset by lower feed costs. Sales for the third quarter dropped to $744.4 million compared to $759.8 million in 2015.
Sullivan said Smithfield is losing money on live hogs to the tune of $600 to $700 per head. But the losses would be worse but for the company’s hedging strategy.
“That is not an area of the business we’re trying optimize or maximize profits,” he explained. “We run that area of the business in a way in which we try to mitigate downside risk, and that informs everything we do from a hedging strategy standpoint and that goes to inputs to selling prices of hogs.”
International operating profit advanced by $12.8 million to $28.1 million on higher sales volume and prices, in addition to lower feed costs in the company’s European operations. Sales for the International segment were $387 million compared with $365 million reported a year ago.
Sullivan said Hurricane Matthew caused “a little bit of ding” to Smithfield’s earnings performance, but exact numbers were not available. He did expect the impact from the storm to be less than $10 million.
“As bad as that storm was, we actually survived it remarkably well,” Sullivan said. “We did have some disruptions certainly in our plant operations — a couple of our plants had to go dark for a couple of days. That was more related to…employee safety than it was anything else.”
From a farm standpoint, Sullivan called it a “good news” story thanks to the efforts of the company’s hog production employees. “We came through that very well in terms of any damage,” he said. “We didn’t have any lagoons breach, we lost very few animals in the process and overall, we came out of that very well.”