Zhongpin achieves record third-quarter results

by Bryan Salvage
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CHANGGE CITY, CHINA — Zhongpin Inc., a leading meat and food processing company in the People's Republic of China, has achieved higher net income, revenues and diluted earnings per share for the third quarter of 2009. Net income increased 30.7% to $13.2 million; revenues increased 26.7% to $194.9 million; and diluted earnings per share increased 29.4% to $0.44.

Based on Zhongpin's results, average hog and pork prices per metric ton increased sequentially about 14.8% in the third quarter from the second quarter of 2009, primarily due to China's purchases for its national pork reserves, which helped to bring the price of hogs above the breakeven point for farmers. The government's purchasing policy is based on the relationship of the price of hogs to the price of corn, which is the principal hog feed. The government authorized certain qualified enterprises, including Zhongpin, to acquire hogs and to slaughter, process and stock them as frozen pork.

In January, the company began operating its new chilled and frozen pork plant in eastern Henan province. It has an annual capacity of approximately 80,000 metric tons. In April 2009, Zhongpin started processing in its new vegetable and fruit facility in Changge, which has an annual capacity of 30,000 metric tons.

Zhongpin upgraded its pork facility in Changge in August and added an annual production capacity of 22,000 metric tons for chilled and frozen pork.

In April, it began building a new pork production facility in Tianjin that will increase total annual pork production capacity by 136,000 metric tons. The facility is designed to process about 100,000 metric tons of chilled and frozen pork products annually, of which 70% will be chilled pork and 30% frozen pork. The remaining 36,000 metric tons of annual capacity will create prepared pork products. Construction of this facility is expected to cost about $62.0 million.

The new Tianjin facility will include a new warehouse and distribution center and a research and development center, which should improve the company's product portfolio, support Zhongpin's cold-chain logistics and help accommodate the higher production capacity by facilitating efficient distribution. The production lines for chilled and frozen pork products are expected to begin in the first quarter 2010 and reach target utilization in the third quarter of 2010. The prepared pork production line, warehouse and distribution center should come on line in the third quarter of 2010 and achieve target utilization in the fourth quarter of 2010.

The company is also building a new prepared pork production facility in Changge, which will cost about $21.0 million and increase its annual prepared pork capacity by about 36,000 metric tons. This facility will produce quick-freeze sausages and other prepared pork products. Production should start in the fourth quarter of 2009 and is expected to reach target utilization in the second quarter of 2010.

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