The company reported net income in the fourth quarter of $98.4 million ($.59 per diluted share) compared to a net loss of $(4.6) million ($(.03) per diluted share) last year, an improvement of $103.0 million. For fiscal 2011, the company reported net income of $521.0 million ($3.12 per diluted share) compared to a net loss of $(101.4) million ($(.65) per diluted share) last year, an improvement of $622.4 million.
"Fiscal 2011 was an outstanding year for Smithfield, and I applaud the remarkable performance of our employees in producing these results. This year's earnings far exceeded those of our last record year and demonstrated an important shift in the key drivers of our business model toward consumer packaged meats, as more than two-thirds of our profits were generated by the Pork segment," said C. Larry Pope, president and CEO.
"Industry fundamentals were very supportive of record profitability in fiscal 2011. Strong global demand for pork, coupled with tight supplies, generated record margins in our fresh pork business. At the same time, Hog Production segment earnings improved significantly, as lower hog inventories boosted live hog market prices and favorable grain hedges yielded raising costs in the mid $50s per hundredweight for the year," he continued.
"In addition, we continued to leverage our restructured Pork Group to effectively maintain pricing and deliver normalized margins in our packaged meats business despite substantial increases in raw material costs. This year we accomplished double digit growth in several of our key strategic brands and product categories including Armour LunchMakers, Curly's Barbecue, Kretschmar Deli and Smithfield Marinade," Pope stated.
"Last year we initiated a plan to improve our balance sheet and we are pleased to report that we have largely achieved the goals set forth in that plan. Over the past year, we utilized cash to repurchase nearly $1 billion in debt, negotiated new revolving credit facilities to significantly reduce interest expense, extended and smoothed maturities, and improved our credit metrics, while ensuring ample liquidity," he commented.
The company delivered record fresh pork margins of 9%, or $15 per head, in the fiscal year, resulting from tight supplies and strong demand, particularly in the export markets, which supported historically high pork cutout values. The company processed 10% fewer hogs, causing volume to decline 8%, mainly as a result of the closure of the Sioux City, Iowa plant in April 2010.
The company's coordinated sales and marketing platform continued to employ strong pricing discipline to deliver solid packaged meats margins of 6%, or $.13 per pound, in the face of record high raw material costs. Volume decreased approximately 4%.
Hog Production margins rebounded substantially to 8%, or $14 per head, as a reduction in hog inventories drove a 29% increase in live hog market prices to $57 per hundredweight, while pre-interest raising costs were approximately equal to the prior year at $54 per hundredweight. Volumes declined 6% as the company divested several non-core hog farms.
International segment operating margin decreased slightly to 9%. In Poland, lower live hog prices and higher raising costs pressured margins and partially offset record earnings in meat processing. The company's Romanian operations remained profitable; however, results declined versus the prior year due to an adverse fresh pork environment and the expiration of incentive programs. Equity income from the company's Mexican operations more than doubled due to a highly favorable hog production environment and improved processing margins. Earnings from Campofrío were comparable with the prior year after adjusting for $10.4 million of debt restructuring charges and $1.3 million of charges related to its discontinued Russian operations, both recorded in the prior fiscal year.
"Looking forward to fiscal 2012, we expect to improve our packaged meats business and are committed to maintaining strong pricing discipline to deliver margins in our normalized range. One of our top priorities this year is to achieve profitable top line growth in our consumer packaged meats business, which will be fueled by increased consumer marketing of our key brands. Balanced supply and demand and strong exports should yield solid fresh pork margins, although we anticipate that profitability will return to more normalized levels. Given these factors, overall Pork segment profitability should continue to be robust in fiscal 2012," Pope said.
"Furthermore, continued low global protein inventories are supporting a higher hog futures curve and yielding hog production profitability in fiscal 2012, despite higher grain prices that will push raising costs into the mid $60s per hundredweight. In addition, the Hog Production Group cost savings initiative is well underway and should improve our long-term cost structure," he commented.
"Having considerably improved our balance sheet, we expect to achieve significantly lower year over year interest expense as well," Pope added.
"Today we also announced that our board of directors has approved a $150 million share repurchase program. This decision underscores our commitment to drive value growth for our shareholders, coupled with our belief that our current stock price does not accurately reflect the earnings power of our business," he remarked.
"Given this outlook, we believe that Smithfield is well positioned as a more efficient, less leveraged, more highly focused organization to deliver another very strong year to our shareholders in fiscal 2012," Pope concluded.
Source: Smithfield Foods Inc.