Smithfield posts near-record Q3 results
Smithfield Foods Inc. reported fiscal 2012 third quarter results. All comparisons are to the third quarter of fiscal 2011. Sales for the third quarter of fiscal 2012 were $3.5 billion, up 9%, resulting from higher average unit selling prices and volumes in the Pork segment. The company reported net income in the current quarter of $79.0 million ($.49 per diluted share) compared to net income of $202.6 million ($1.21 per diluted share) last year. For the first nine months of fiscal 2012, net income was $281.8 million ($1.72 per diluted share) compared to net income last year of $422.6 million ($2.53 per diluted share). It was the second best third quarter in company history, Smithfield reported.
Both current quarter and year to date operating profit and earnings per share included a number of noteworthy items. For the third quarter, EPS of $.49 included $.18 per diluted share for Campofrío charges, as well as a $.02 per diluted share charge for the early extinguishment of debt. Excluding these charges, adjusted EPS was $.69 on a non-GAAP basis. Similarly, after adjusting for noteworthy items for the first nine months, non-GAAP EPS was $2.16 in fiscal 2012 compared to non-GAAP EPS of $2.18 in fiscal 2011.
"I am very pleased to report another quarter of strong profitability and, in particular, the progress we have made in improving the quality and consistency of our earnings. Notably, our year to date adjusted earnings closely tracked last year's record results," said C. Larry Pope, president and CEO.
"I am very encouraged by the consistency of our packaged meats margins in periods of both high and low cost raw materials. We are beginning to realize the benefits of our long-term strategy to intensify our consumer-focused marketing programs and I applaud the efforts of our sales and marketing team who produced consistently solid margins in our packaged meats business while delivering share and distribution growth in several of our core brands and strategic product categories. Although packaged meats volumes declined slightly, we achieved strong sales and volume growth in the third quarter in our Armour, Curly's, Farmland, Gwaltney, John Morrell, and Kretschmar brands," he remarked.
"We had a very successful holiday ham season, as we leveraged our leading market position in the bone-in ham category to deliver both volume and share gains. In addition, we gained distribution in the BBQ, dry sausage, portable lunches, deli meats, and marinated pork categories," Pope added.
Fresh pork operating margins were above the normalized range at 6%, or $11 per head, and remained historically strong owing to excellent export demand and relatively stable domestic supplies. Results declined from last year's record levels due to significantly higher raw material costs, as a 23% increase in live hog market prices outweighed an 11% improvement in the USDA pork cutout. Sizable gains in exports led to increases in sales tonnage and head processed of 7% and 1%, respectively.
Packaged meats operating margins were at the high end of the normalized range at 7%, or $.15 per pound. Continued sales discipline and an improvement in product mix toward higher margin core brands allowed the company to pass through the vast majority of raw material price increases. Sales grew 6% to $1.7 billion, as average unit selling prices rose 7%. Sales tonnage decreased 1%, although the company grew share in several key product categories, including bacon, BBQ, deli meats, and hot dogs.
Hog Production operating margins were below the normalized range at (1)%, or $(2) per head and reflected the seasonally low period for live hog prices. Year over year, live hog market prices increased 23% to $61 per hundredweight from $50 per hundredweight, while pre-interest raising costs increased 23% to $64 per hundredweight from $52 per hundredweight. Head sold decreased 6%, largely attributable to the sale of non-core farm operations last fiscal year and the temporary effects of the Hog Production Cost Savings Initiative.
"Going forward, our focus will continue to be on developing our sales and marketing platform and brand portfolio by increasing direct-to-consumer advertising and building our innovation pipeline. In addition, we remain committed to achieving further operational efficiencies and improving our cost structure. We have made significant progress on all of these fronts; however, we are not satisfied with our results and we are pursuing opportunities to further improve our business," Pope stated.
"Market fundamentals remain supportive in both fresh pork and hog production with balanced supply and demand. We expect that fresh pork will continue to be a solid contributor to our overall results as U.S. protein supplies contract, supported by ongoing healthy export demand. In the hog production segment, raising costs should remain in the mid $60s per hundredweight this fiscal year and average in the low $60s per hundredweight for fiscal 2013. In addition, the profitability of our international business should remain strong in the coming quarters," he commented.
Pope concluded, "All indications are that fiscal 2012 will be another very strong year for Smithfield and we expect to continue to deliver consistently solid results in fiscal 2013."
Source: Smithfield Foods Inc.