Pork processor Zhongpin: Higher revenues, net income in Q1 of 2011

Chinese meat and food processor Zhongpin reported higher revenues, net income, and earnings per share for the three months ended March 31, 2011.

Total revenue increased $81.5 million or 40% to $285.8 million in the three months ended March 31, 2011 from $204.3 million in the first three months ended March 31, 2010, primarily due to increased average selling prices of Zhongpin's products and increased sales volume in its meat and meat products segment resulting from the company's continuing geographic expansion, more branded stores, and increased sales to food service distributors in China.

Xianfu Zhu, the company’s chairman and CEO, said, "Our first quarter was a very good start to the year 2011. Our revenues increased on both higher average prices and higher tonnage, although we saw somewhat lower pricing in some product lines.

"With our good results in the first quarter, we have reaffirmed our previous guidance and have revised only our guidance earnings per share numbers to account for the higher average shares that are outstanding during 2011 as a result of the completion of our follow-on offering.

"Our operations have continued to perform well and our capacity and market expansions are on schedule.

Zhu said: "We will continue to make the investments in the latest improvements in bio-science and product and process technologies to keep our plants, cold-chain logistics, and suppliers at the forefront of product quality and safety. Our objective is to continue to lead the industry with the highest product quality – from farm to fork.

"In 2011, we are executing our proven strategy to expand our sales, profits, market share, and the geographic regions that we serve. We expect to sustain the trend-line growth we have achieved in the last five years."

Capacity and market expansions
Several new building projects have just been finalised or are about to be finished. The company put its new facility in Tianjin into operation in January 2010. The new plant has a production capacity of about 100,000 metric tonnes for chilled and frozen pork. The construction of phase two of the facility, with a production capacity of about 36,000 metric tonnes for prepared pork products started in October 2010 and should be in operation in the second quarter of 2011.

The food processor is investing about US$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, Changchun, in the Jilin province of China. The company is also investing about $63.0 million to build a production facility, warehouse, and distribution center in Taizhou, Jiangsu province. In addition, the company is investing about $58.5 million to build a new production, research and development, and training complex in Changge, Henan province.

As of March 31, 2011, Zhongpin had an annual capacity of 563,760 metric tonnes for chilled and frozen pork, 90,000 tonnes for prepared pork products, 20,000 tonnes for pork oil, and 30,000 tonnes for vegetables and fruits, for a total annual capacity of 703,760 metric tonnes.

Outlook for pork demand in China
Zhu continued, "Our strategy, which has proven to be very effective, has five major objectives that are designed to create additional value for our shareholders:

- increase our brand recognition and sales,

- expand our market presence,

- increase our production capacities,

- expand and optimise our product lines, and

- maintain our technological superiority.

"China's economy continues to expand and pork continues to be China's preferred protein. We are continuing to build a strong leading national brand position and higher market share in the pork category and are expanding our processing plants and distribution networks to satisfy the increasing demand for our high quality products.

"We believe the outlook for China's pork processing industry remains quite positive, and we expect to be a leader in the industry's consolidation in China.

"The outlook for the Chinese economy, its food processing industry, and for Zhongpin continues to be very encouraging, so we have reaffirmed our prior guidance for the year 2011, and have revised only the guidance earnings per share numbers for the higher average shares that are outstanding in 2011 as a result of the completion of our follow-on offering."

Guidance for the year 2011
Based on several assumptions and judgments, Warren Wang, the company’s CFO, said, "For the year 2011, we expect that Zhongpin's sales revenues should be within a range of US$1.18 billion to $1.23 billion.

"Gross profit margin is expected to be within the range of 11.7% to 12.4%.

"Net profit margin is expected to be within the range of 5.7% to 6.3%.

"Zhongpin believes that China's meat and food industry will continue to consolidate in 2011 at a more rapid pace than in 2010, which may result in higher market shares for our main competitors. However, we believe that Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2011 can be achieved."

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