SMITHFIELD, Va. – Lower prices and changes to foreign currency exchange rates curbed first quarter profits at Smithfield Foods, Inc., a unit of China-based WH Group.
Operating profit in the Fresh Pork segment fell by $25.7 million on lower fresh pork market prices, the company said. Sales for the segment declined to $1.344 billion on an 8 percent decrease in average selling prices, which was partially offset by a 4 percent increase in volume. Smithfield processed 7.7 million hogs in 2015, an increase of 5 percent from a year ago.
Hog Production segment results declined by $15.9 million on a 25 percent drop in domestic live hog market prices. Favorable hedging results and lower feed costs partially offset the decline. Segment sales slipped 5 percent to $806.4 million on lower live hog market prices.
Porcine epidemic diarrhea virus continues to threaten piglets, although Smithfield noted the outbreak is less severe compared to 2014 when more than 8 million piglets died from PEDv.
“PEDv has not been a major issue, but the virus does remain a potential wildcard going forward,” the company said. “We expect US market hog supplies to rebound in 2015, although lower prices and reduced energy costs should generate additional demand in the export markets, as well as domestically.
“Lower pork prices should also allow us to leverage additional synergistic opportunities with WH Group and Shuanghui, our sister company in China.”
Smithfield's Packaged Meats segment delivered strong results in the quarter. Sales advanced 10 percent to total $1.71 billion. The company said a 12 percent gain in volume driven by the timing of Easter partially offset a 2 percent decline in average selling prices. Operating profit jumped $51.2 million on lower raw material costs.
Sales in the company's International segment declined 12 percent to $330.2 million due to changes in foreign exchange rates. On an adjusted currency basis, sales climbed 2 percent on a 4 percent increase in volume of 360.2 million lbs.
Operating profit in the segment dropped 57 percent to $15.9 million. Smithfield said lower average selling prices in Europe and weak performances from Campofrio Food Group and joint ventures in Mexico dragged on earnings. The segment also suffered a $2.4 million foreign currency translation due to a stronger US dollar.
Overall, net income for the quarter ended March 29 was $97 million, which compares to $105.3 million in the year-ago quarter.
“We will continue to sharpen our strategic focus and drive operational improvements across our entire platform,” the company said. “Our most exciting growth prospect is the ongoing development of our packaged meats business.
“We will continue to strengthen our consumer-focused marketing programs and promote innovation to improve our product mix toward branded, value-added products. Consequently, we expect to deliver modest volume growth and very solid packaged meats margins.”