Smithfield Foods, Inc. reported fiscal 2014 first quarter results. All comparisons are to the first quarter of fiscal year 2013.
"The key driver of our business continues to be packaged meats where we achieved solid margins, while growing volume, as well as market share and distribution across a number of our core brands and product categories in the first quarter," said C. Larry Pope, president and chief executive officer.
• Net income was $39.5 million
• Diluted EPS was $.27
• Sales of $3.4 billion, up 10%
• Total Pork operating profit was $61.4 million
• Fresh Pork operating loss was $(36.5) million
• Packaged Meats operating profit was $97.9 million
• Hog Production operating profit was $66.5 million
• International operating profit was $1.9 million
The company's Smithfield, Armour, Kretschmar, Curly's, Margherita and Carando brands all grew in the first quarter. Its Armour and Curly's brands performed especially well, up double-digits. Market share increased across the cooked dinner sausage, dry sausage and marinated pork categories. At the same time, the company expanded distribution of its Eckrich cooked dinner sausage, Gwaltney hot dogs, Smithfield bacon, Curly's BBQ, Armour dry sausage, Armour portable lunches and Smithfield and Farmland marinated pork.
Pope continued, "The operating environment in fresh pork and our international business was difficult in the first quarter. Normal seasonal weakness in fresh pork was exacerbated by declines in key export markets, namely Japan, as well as China and Russia. Higher raising costs in our hog production businesses in Eastern Europe and Mexico adversely impacted earnings in our international segment."
Pope further noted that while these results were disappointing, the company's integrated model helped lessen the adverse impact of weakness in other segments. "Our hog production earnings nearly tripled from last year on higher hog prices," he said.
Sales for the first quarter of fiscal 2013 were $3.4 billion, up 10%. Net income was $39.5 million ($.27 per diluted share) in the first quarter, compared to net income of $61.7 million ($.40 per diluted share) last year.
Historically, the first quarter is seasonally the weakest period for fresh pork. Fresh pork operating margins decreased to (3)%, or $(5) per head, resulting from higher hog costs that could not be fully passed through in prices and export market weakness. The company processed 4% more hogs.
Packaged meats operating margins were solid at 7%, or $.16 per pound, but declined on higher raw material costs, particularly bellies. Volume grew 2%. The company delivered volume growth in six of its twelve core brands: Smithfield, Armour, Kretschmar, Curly's, Margherita and Carando. The company gained market share in several strategic product categories including cooked dinner sausage, dry sausage and marinated pork. In addition, the company increased distribution of its Eckrich cooked dinner sausage, Gwaltney hot dogs, Smithfield bacon, Curly's BBQ, Armour dry sausage, Armour portable lunches and Smithfield and Farmland marinated pork.
Hog Production operating margins were strong at 8%, or $17 per head. Year over year, live hog market prices rose 6% to $71 per hundredweight, while raising costs increased 2% to $68 per hundredweight. The company sold 6% more hogs.
International operating margins declined to 1% largely from higher feed costs in the company's hog production operations.
"The first quarter should mark the low point of the year for Smithfield. We will continue to execute on our long-term strategic growth plan, focused on improving our earnings stream and migrating Smithfield further towards a consumer packaged meats company," Mr. Pope said.
The focal points of the company's growth strategy include increased consumer marketing, product innovation and capital investment to maximize Smithfield's existing business by improving its product mix toward differentiated, branded and value-added products, both domestically and in the export markets. "We are leveraging our integrated platform to augment this strategy," he commented.
Pope concluded, "Despite the lackluster first quarter, we remain very optimistic about the future of Smithfield."
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