Net income, sales up for Zhongpin's second quarter

by Bryan Salvage
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CHANGGE CITY, CHINA — Zhongpin Inc. announced higher net income, diluted earnings per share and revenues for the second quarter 2009. Net income increased 25.9% to $10.7 million from $8.5 million in the second quarter 2008, diluted earnings per share increased 24.1% to $0.36, and revenues increased 17.7% to $161.8 million from $137.5 million in the second quarter 2008.

The downward trend of hog and pork prices during the second quarter turned upward in June and prices have continued at higher levels in July and early August, the company relayed.

"The second quarter was unusual for us, primarily due to the temporary fear consumers had about getting the A/H1N1 flu from pork products, which the world's health agencies have confirmed is not possible," said Xianfu Zhu, chairman and chief executive officer of Zhongpin Inc.

Hog and pork prices decreased sequentially about 20% during the second quarter from the first quarter 2009, primarily because the supply of hogs was higher than the market demand. The imbalance in supply and demand was due primarily to three factors: an oversupply of hogs, to a lesser extent the seasonal decline in market demand for pork that is typically associated with warmer weather, and the global outbreak of the AH1N1 flu virus in April 2009, which temporarily scared consumers and adversely affected the hog and pork industries.

For the second half of 2009, the company expects steady growth in the sales of its pork and pork products. The recent decline in the price of live hogs has caused a number of hog breeders to terminate their breeding operations, which the company expects will reduce the oversupply of live hogs during the second half of 2009. The company anticipates a change in the supply of live hogs, which it expects will cause prices to stabilize and to begin increasing in the second half of 2009.

Over the next 12 months, the company expects to continue to expand its distribution channel and develop new markets. "Pork is China's primary source of protein," Mr. Zhu said. "We believe the outlook for the long-term potential of China's meat-processing industry remains very positive. We plan to continue to expand our distribution and processing plants to serve this market opportunity and build a leading brand position in the pork category."

Zhongpin's full-year 2009 guidance for revenues continues to be in the range of $780 million to $810 million, with a gross margin of approximately 12%, net profit margin of at least 6%, and diluted earnings per share in the range of $1.50 to $1.63, assuming common shares used to calculate diluted E.P.S. are 30.7 million shares. This guidance also assumes hog and pork prices will increase about 10% during the third quarter and stabilize at that new level in the fourth quarter.

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