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Zhongpin: Higher 3Q revenues and net income

Zhongpin Inc., a leading meat and food processing company in China reported higher revenues and net income for the third quarter ended September 30, 2011 (the "third quarter 2011") than the third quarter ended September 30, 2010 (the "third quarter 2010").

Third quarter 2011 highlights:
  • Revenues increased 65% to $398.1 million in the third quarter 2011 from $241.1 million in the third quarter 2010.
  • Gross profit margin was 10.1% in the third quarter 2011 compared with 11.3% in the third quarter 2010.
  • Operating profit margin was 6.2% in the third quarter 2011 compared with 6.6% in the third quarter 2010.
  • Net profit margin was 4.6% in the third quarter 2011 compared with 6.1% in the third quarter 2010.
  • Net income increased 25% to $18.3 million in the third quarter 2011 from $14.7 million in the third quarter 2010.
  • Basic earnings per share were $0.46 in the third quarter 2011, up 9.5% from $0.42 in the third quarter 2010 on average basic shares outstanding that were 15% higher in the third quarter 2011 than in the third quarter 2010.
  • Diluted earnings per share were $0.46 in the third quarter 2011, up 9.5% from $0.42 in the third quarter 2010 on average diluted shares outstanding that were 13% higher in the third quarter 2011 than in the third quarter 2010.
  • Zhongpin maintained its guidance for the year 2011.
 
Mr. Xianfu Zhu, chairman and chief executive officer of Zhongpin Inc., said, "We continued to achieve good results in the third quarter 2011 in our operations, financial results, and geographic and capacity expansions.
 
"Revenues grew 65% and net income was up 25% from third quarter 2010 as we continued to invest aggressively to expand our operations and marketing to support higher revenues and net income for the future. Total tonnage sold of pork and other products was up 6.8%, with average prices up 54.6%, in third quarter 2011 over third quarter 2010.
 
"Given our strong performance in this third quarter, we have maintained our guidance for the year 2011.
 
"Our construction projects are on schedule, with three coming into operation in the fourth quarter. These projects will help support growth in our current markets and in our geographic market expansions in northern and eastern China, which we expect will result in higher sales and a larger market share of the national pork market. These three projects include two facilities for chilled and frozen pork and one facility for prepared pork products. The openings of these production facilities are timed to support the higher demand from our new markets during the Chinese New Year from the last week of January through first week of February 2012.
 
"We are continuing to increase consumer awareness and purchases of Zhongpin products through sustained marketing and promotion programs, especially in the geographic regions where we are expanding our operations to support the growing demand for pork and related products.
"Under our Stock Repurchase Program, Zhongpin has purchased a total of 1,822,438 shares of its common stock for $15.8 million (including sales commissions) through September 30, 2011. We believe that these purchases will create additional value for shareholders.
"We remain on plan to deliver a very good year in 2011."
 
Capacity and market expansions
Zhongpin began operating its new phase 2 facility in Tianjin in September 2011, as planned. Phase 2 has a production capacity of 36,000 metric tons for prepared pork products. The phase 1 of the same facility began operating in January 2010 with a production capacity of 100,000 metric tons for chilled and frozen pork.
 
Zhongpin is investing about $61.5 million to build a slaughtering and processing plant, low temperature prepared pork plant, logistics center, and research and development center in Nong'an county in Changchun, Jilin. This facility will have a production capacity of about 70,000 metric tons for chilled pork, 25,000 metric tons for frozen pork, and 30,000 metric tons for prepared pork products. Construction began in September 2010. The Company expects to begin operating the chilled and frozen pork facility in the fourth quarter of 2011 and the prepared pork products facility in the third quarter of 2012.
 
Zhongpin is investing about $63.0 million to build a production facility, warehouse, and distribution center in Taizhou, Jiangsu. This facility will have a production capacity of about 80,000 metric tons for chilled and frozen pork, including easy-to-cook products, 20,000 metric tons for frozen pork, and 30,000 metric tons for prepared pork products. Construction began in September 2010. The Company expects to begin operating the chilled and frozen pork facility in the fourth quarter of 2011 and the new facility for prepared pork products in the third quarter of 2012.
 
Zhongpin is investing about $58.5 million, excluding the cost of land use rights that it has already obtained, to build a new production, research and development, and training complex in Changge, Henan. When complete, this new facility will have a production capacity of about 100,000 metric tons for prepared pork products. Adjacent to this new facility, the Company expects to develop a center for research and development, training, and quality assurance and control. Construction for the first phase with an annual production capacity of about 50,000 metric tons for prepared pork products began in the first quarter of 2011 and should be completed by the fourth quarter of 2011. The second phase, with a production capacity of about 50,000 metric tons for prepared pork products, should be completed by the fourth quarter of 2012. Zhongpin plans to open the research and development and training center by the fourth quarter of 2012.
 
Zhongpin has established a joint venture company, of which the Company owns 65%, with Henan Xinda Animal Husbandry Company Limited in June 2011. The joint venture company is financed by capital contributions, which have been made to date, and bank loans. The joint venture company is expected to provide 20,000 sire boars annually. The facility for sire boar breeding is under construction and should start operations in the first quarter 2012.
 
Zhongpin is investing approximately $18.0 million in a cold chain logistics distribution center in Anyang, Henan. This distribution center will have processing capacity, a temperature adjustable warehouse with a floor area of approximately 27,000 square meters, a distribution center, and a quality control center. The distribution center will be used for third-party cold chain logistics service. We expect to put this distribution center into operation in the third quarter of 2012.
Zhongpin plans to invest approximately $87.5 million in a chilled and frozen food processing and distribution center in Kunshan, Jiangsu, which is near Shanghai. The whole center will be built in three phases. The first phase will include a processing center, cold chain logistics center, and business complex. We expect to invest about $35.0 million on the first phase and expect to put it into operation in the fourth quarter of 2012.
 
As of September 30, 2011, Zhongpin had an annual capacity of 563,760 metric tons for chilled and frozen pork, 126,000 tons for prepared pork products, 20,000 tons for pork oil, and 30,000 tons for vegetables and fruits, for a combined total of 739,760 metric tons.
 
Outlook for pork demand and prices in China
China's economy continues to expand and pork continues to be China's preferred protein. Zhongpin believes that the outlook for China's pork processing industry remains quite positive.
 
Our purchasing cost of hogs and our selling price of pork both increased 60% in the third quarter of 2011 compared with the same period last year, primarily because the supply of hogs was insufficient to satisfy demand and inflation increased the cost to raise hogs.
 
Zhongpin expects hog prices to remain stable in the fourth quarter 2011 and to increase moderately during the first quarter of 2012 due to the strong demand for pork during the Chinese New Year.
 
Sales revenues
Sales revenues increased $157.0 million or 65% to $398.1 million in the third quarter 2011 from $241.1 million in the third quarter 2010, primarily due to higher pork prices, higher sales volume in pork products resulting from the continuing increase in the number of retail channels, geographic expansion, and higher sales to chain restaurants, food service providers, and wholesalers and distributors in China. The following table presents our sales by product division for the third quarters of 2011 and 2010.

Sales by Division
Three months ended
September 30, 2011
Three months ended
September 30, 2010
Metric
Tons
Revenues
(millions)
Average
Price /
Metric
Ton
Metric
Tons
Revenues
(millions)
Average
Price /
Metric
Ton
Pork and Pork Products
 Chilled pork
73,771
$       247.7
$3,358
61,897
$      130.6
$2,110
 Frozen pork
33,045
93.0
$2,814
38,431
67.4
$1,754
 Prepared pork products
21,600
52.4
$2,426
19,052
38.6
$2,026
Vegetables and Fruits
6,034
5.0
$829
6,495
4.5
$693
Total
134,450
$       398.1
$2,961
125,875
$      241.1
$1,915
 
Chilled pork revenues increased on higher tonnage at higher average prices. Revenues from chilled pork products increased 90% in the third quarter 2011 from third quarter 2010. Chilled pork tonnage increased 19% in the third quarter 2011 from the prior third quarter. The average price per metric ton for chilled pork increased 59% in the third quarter 2011 from the third quarter 2010.
Frozen pork revenues increased on lower tonnage at higher average prices. Revenues from frozen pork products increased 38% in the third quarter 2011 from the third quarter 2010. Frozen pork tonnage decreased 14% in the third quarter 2011 from the third quarter 2010.
 
The average price per metric ton for frozen pork increased 60% in the third quarter 2011 from the third quarter 2010. Prepared pork products revenues increased on higher tonnage at higher average prices. Revenues from prepared pork products increased 36% in the third quarter 2011 from the third quarter 2010. Prepared pork tonnage increased 13% in the third quarter 2011 from the third quarter 2010. The average price per metric ton for prepared pork products increased 20% in the third quarter 2011 from the third quarter 2010.
 
Pork and pork products totaled 98.7% of total revenues in the third quarter 2011 and 98.1% in the third quarter 2010.
 
Vegetables and fruits revenues increased on lower tonnage at higher average prices. Vegetables and fruits revenues increased 11% in the third quarter 2011 from the third quarter 2010. Tonnage of vegetables and fruits decreased 7% in the third quarter 2011 from the third quarter 2010. Average price per metric ton for vegetables and fruits increased 20% in the third quarter 2011 from the third quarter 2010. Vegetables and fruits were 1.3% of total revenues in the third quarter 2011 and 1.9% in the third quarter 2010.
 

Editor PigProgress

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