Expenses, labor costs pressure Zhongpin earnings

by Meat&Poultry Staff
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BEIJING and CHANGGE, China – Net income for 2012 declined 31 percent on higher expenses, Zhongpin, Inc. reported.

Net income dropped to $44.1 million from $64.2 million in 2011. The company attributed the decline to several factors, including lower gross profit; the cost of more employees to support expansion; higher salaries; increased promotional activity; rising labor and utility costs and higher interest expenses.

Sales revenues increased 13 percent to $1,639.6 million in 2012 from $1,456.2 million in 2011 primarily on higher sales volume for pork products sold at lower average selling prices, according to the company.

"In 2012, our sales revenues increased 13 percent on higher tonnage at lower average prices, compared with 2011, primarily due to the intense competitive market pressure generated mainly by the continuing pork industry consolidation in China," said Xianfu Zhu, chairman and CEO of Zhongpin. "Our costs continued to increase, mainly in support of our current operations and planned expansions. As a result, our gross profit margin declined to 9.4 percent in 2012 from 10.7 percent in 2011 and our net profit margin declined to 2.7 percent in 2012 from 4.4 percent in 2011.

"We are sustaining our prudent expansions in geographic markets and operations to gain market share for our long-term success in the face of the ongoing industry consolidation," Zhu said. "We are managing our costs to maintain as much gross and net profit margin as possible and are aggressively working to further increase our asset utilization, effectiveness, and efficiency."

Diluted earnings per share dropped 29 percent to $1.18 in 2012 from $1.66 in 2011, the company reported. Weighted average diluted shares outstanding declined 3 percent to 37,328,792 shares in 2012 from 38,539,880 shares in 2011.

"In 2013, we expect that the demand for pork in China should remain strong and that Zhongpin's revenues from pork and pork products are likely to increase modestly based on higher tonnage sold at lower average prices, while live hog prices will remain at current levels, compared with 2012," Zhu said. "We anticipate that our net profit margin in 2013 will decrease due to increased competition in the industry, the expected increase in labor cost and overheads, and the expected increase in quality assurance and control costs in response to increased importance on food safety placed by the government and consumers."

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