Zhongpin earnings slide on soft pork prices

by Meat&Poultry Staff
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BEIJING and CHANGGE, China – Zhongpin Inc. net income declined 27.8 percent to $12.2 million in the first quarter ended March 31 on competitive pressure in the pork market and low pork prices. This compares to net income of $16.9 million in the comparable period in 2011, the company said.

Diluted earnings per share decreased 29.8 percent to $0.33 from $0.47 in the first quarter 2011. Diluted shares outstanding that were 3.5 percent higher on average compared to 2011. Sales revenues climbed 31 percent to $374.1 million from $285.8 million, the company said.

"The intense competitive pressure in the pork market to gain market share continued in the first quarter as the pork industry goes through consolidation,” said Xianfu Zhu, chairman and chief executive officer for Zhongpin. “As a result, pork prices did not increase, as a percent, as much as hog prices increased, which narrowed the gross profit spread between the cost of hogs and the price of pork. Further, substantial promotion costs were required to be competitive in both keeping and gaining market share. As expected, we incurred higher expenses in promotion, marketing, and operations to build market share and prepare the Company for increasing success in the future.

"Although, pork prices and volumes were generally higher in the first quarter than in the first quarter of 2011, we expect the prices of both hogs and pork to decline approximately 15 percent to 20 percent in 2012, so it will continue to be difficult to report higher results in 2012 than in 2011.

Zhu said the company is slowing its rate of capacity expansions while focusing on maximizing use of existing facilities. This strategy should help offset some of the price pressures on Zhongpin’s financial results, he said. However, the company is maintaining its guidance.

Sales revenues should be within a range of US$1.55 billion to $1.72 billion for 2012. Gross profit margin is forecasted to be within the range of 8.6 percent to 10.2 percent, while net profit margin is expected to be 3.3 percent to 4.2 percent.

Diluted earnings per share for 2012 is forecasted within $1.36 to $1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares.

"Given the challenging competition that is very likely to continue in the marketplace in 2012, we still expect to report somewhat higher revenues in 2012 than 2011, a somewhat lower gross profit margin, and a somewhat lower net profit margin than in 2011, and diluted earnings per share within the range of $1.36 to $1.92 per share in 2012,” Zhu said.

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