Smithfield Sales Rise, Profits Down17 June 2013
US - Smithfield Foods saw sales of $13.2 billion over the last year up by one per cent on the previous year.
However, net income last year was $183.8 million compared to $361.3 million the year before.
Total Pork operating profit was the second best in company history up also up by one per cent and sales were in line with previous year.
However, Fresh Pork operating profit was down by 27 per cent and sales down three per cent.
Packaged Meats operating profit was up 17 per cent and sales up two per cent, while International operating profit was up 153 per cent and sales in line with the previous year.
During the year the company repurchased 19.1 million shares for $386 million.
In the fourth quarter of the year, net income was $29.7 million on sales of $3.3 billion, up by three per cent.
Total pork operating profit was up by 16 per cent and sales up by one per cent.
Fresh Pork operating profit was up 109 per cent in the quarter and despite sales being down by five per cent.
Packaged Meats operating profit was up by five per cent and sales up six per cent.
"Driven by both top and bottom line growth in packaged meats, these earnings reflect our continued transformation into a more value-added consumer packaged meats company. For the full year, packaged meats operating profit increased nearly $70 million, or 17 per cent, year over year and volume was up 4 per cent. Our core brand volume grew even more substantially, up 5 per cent," said C. Larry Pope, president and chief executive officer.
Smithfield said the company continued to deliver consistent growth in its packaged meats business in fiscal 2013, with increased volume and market share and broader distribution of its core brands.
Packaged meats sales dollars and volume grew across all trade channels and in eight of the company's 12 core brands.
"Double-digit gains were realized for Smithfield bacon, Armour dry sausage, and Smithfield and Farmland marinated pork. In the deli channel, our Eckrich deli meats also finished the year up double-digits," Mr Pope said.
Market share improved in bacon, cooked dinner sausage, dry sausage and marinated pork. In addition, the company broadened distribution of its core brands in a number of key product categories, including cooked dinner sausage, deli meats, dry sausage, marinated pork, packaged lunchmeat and portable lunches.
Mr. Pope added: "Fiscal 2013 was a challenging year in hog production with higher grain prices due to last summer's drought and, more recently, export market disruptions. For the industry, pork exports were down to nearly every major market in the fourth quarter with volumes to China and Russia falling over ractopamine certification requirements and the weakening yen resulting in lower shipments to Japan. This decline in pork exports pushed production back onto the domestic market and negatively impacted our hog production and fresh pork businesses in the fourth quarter."
Fresh pork operating margins in the fourth quarter improved from the prior year to two per cent, or $3 per head, as live hog prices fell 6 per cent.
Retail volume was strong, up 10 per cent. The company processed 3 per cent more hogs. Exports declined double digits on lower shipments to China and Russia due to new ractopamine certification requirements and Japan as the yen depreciated versus the dollar.
Smithfield resumed shipments to China in mid-March, sourcing product from its plants in Clinton and Tar Heel, North Carolina and Milan, Missouri, which are 100 per cent ractopamine-free.
Over the year, fresh pork operating margins declined to three per cent, or $6 per head. Larger domestic pork supplies resulting from lower exports pushed the USDA pork cutout down seven per cent year over year, while live hog prices fell only six per cent. Retail sales volume increased double digits. Excluding the carcass volume last year, exports increased 4 per cent year over year. The company processed three per cent more hogs.
Packaged meats operating margins in the quarter were solid and in line with the prior year at seven per cent, or $.16 per pound. Volume grew by four per cent and was up year over year across all key trade channels for the fourth consecutive quarter.
The company delivered volume growth in nine of its twelve core brands: Smithfield, Gwaltney, Kretschmar, Armour, Eckrich, Curly's, Farmland, Margherita and Healthy Ones. In addition, it gained market share in cooked dinner sausage, dry sausage, ham steaks and marinated pork, with notable double-digit growth in its Eckrich cooked dinner sausage, Armour dry sausage and Smithfield and Farmland marinated pork.
The company also broadened distribution in the bacon, deli meats, dry sausage, hot dogs, packaged lunchmeat, portable lunches and marinated pork categories.
Packaged meats operating margins grew over the year to eight per cent, or $.17 per pound, on four per cent higher volume. Sales and volume grew across all trade channels and in eight of the company's twelve core brands: Smithfield, JohnMorrell, Kretschmar, Armour, Eckrich, Carando, Farmland and Margherita. Higher quality and more consistent earnings continued to result from market share and distribution gains across a number of key product categories.
Smithfield said that the company's risk management strategy continued to mitigate losses to produce results that were better than the industry average with an operating loss of five per cent, or a loss of $11 per head.
Year over year, live hog market prices decreased six per cent to $59 per hundredweight, while raising costs rose by five per cent to $68 per hundredweight. Head sold increased 5by five per cent.
For the year, hog production operating margins fell by four per cent - a drop of $7 per head.
Losses were significantly diminished by the company's risk management strategy. Year over year, live hog market prices decreased by six per cent to $61 per hundredweight, while raising costs rose 6 per cent to $68 per hundredweight. Head sold increased by one per cent.
International operating margins declined in the last quarter to two per cent largely from higher feed costs in the company's hog production operations. On a constant currency basis, sales increased by six per cent led by higher volumes in Poland and price increases in Romania. Recessionary pressures and high raw material costs continued to negatively impact Campofrío results.
Over the year, International segment operating profit more than doubled to $108.2 million primarily on strong profitability in Romania, as well as the company's Polish hog production operations. Recessionary pressures and higher raw material costs continued to weigh on Campofrio's margins.
The company said it will continue to execute its strategic growth plan to improve its earnings stream and migrate Smithfield further towards a consumer packaged meats company. The fundamental tenets of this plan — as outlined last quarter — include the following:
Increase capital investment to improve competitive cost structure and achieve least cost and best in class operations,Continue a higher level of investment in direct-to-consumer marketing programs to build brand equity and grow sales,Establish a culture of innovation to build strong product pipeline to drive packaged meats volume and margin,Emphasize hog production assets as strategic point of difference, andPursue a diversified mergers and acquisitions strategy in packaged meats and value-added products.
"We believe in this plan's ability to deliver broad-based gains in volume, market share and distribution across our core brands and key product categories. The combination of those gains, an improving product mix toward differentiated, branded and value-added products, as well as loosening export market restrictions in our fresh pork business and higher contributions from our international meat processing business, should provide significant long-term growth potential for Smithfield," said Mr. Pope.
Smithfield and Shuanghui Merger
As previously announced on 29 May, Smithfield and Shuanghui International Holdings Limited ("Shuanghui") entered into a definitive merger agreement that values Smithfield at approximately US$7.1 billion, including the assumption of Smithfield's net debt.
Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, Shuanghui will acquire all of the outstanding shares of Smithfield for US$34.00 per share in cash.
The closing of the transaction is subject to certain conditions, including, among others, approval by Smithfield's shareholders, the receipt of approval under applicable US and specified foreign antitrust and anti-competition laws, the Committee on Foreign Investment in the United States and other customary closing conditions.
The deal is expected to close in the second half of 2013.
In light of this announcement and until further notice, Smithfield has elected to discontinue conference calls to discuss its quarterly and annual results. The company will continue to issue quarterly earnings press releases.
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