Sales up, income down for Smithfield Q4, year-end results
Smithfield Foods Inc. reported fiscal 2012 fourth quarter and full year results. All comparisons are to the fourth quarter and full fiscal year 2011. Sales for the fourth quarter of fiscal 2012 were $3.2 billion, up 3%. Net income was $79.5 million ($.49 per diluted share) in the fourth quarter, compared to net income of $98.4 million ($.59 per diluted share) last year. Results for the fourth quarter include $16.8 million, or $.06 per diluted share, for expected insurance reimbursements related to an anticipated settlement of the company's Missouri litigation. The fourth quarter of fiscal 2011 included a pre-tax charge on the early retirement of debt of $71.1 million, or $.26 per diluted share.
Fiscal 2012 sales increased 7% to $13.1 billion. Net income was $361.3 million ($2.21 per diluted share) in fiscal 2012, compared to net income of $521.0 million ($3.12 per diluted share) last year.
"Fiscal 2012 net income represented the second best year in Smithfield history — following a record year in fiscal 2011 — and underscored our ability to continue to deliver solid earnings to our shareholders," said C. Larry Pope, president and CEO.
"This year, Smithfield aggressively returned capital to its investors through significant share repurchases. In the last twelve months, we repurchased 11.8 million shares, or 7% of the company, for $242 million. Ongoing share repurchases are a priority," he stated.
"Our packaged meats business delivered another outstanding year and, in spite of higher raw material costs, grew operating profit by more than $50 million or $.02 per pound. Our strategy for growth is beginning to pay off, as we continue to coordinate our sales and marketing team approach, focus on our twelve core brands, invest in consumer-focused advertising, and build a strong innovation pipeline to grow share and distribution," Pope remarked.
He continued, "Notably, in fiscal 2012, we gained share in a number of key product categories including bacon, dinner sausage, hot dogs, and marinated pork and increased distribution in bacon, BBQ, deli meats, dry sausage, ham steaks, marinated pork, and portable lunches. In addition, we achieved sales and volume growth in our Armour, Eckrich, Farmland, Gwaltney, John Morrell and Smithfield brands. I am very encouraged by this progress in packaged meats."
"As a result of our heightened marketing, we are making stronger connections with consumers to activate our brands. For example, we initiated a multiyear partnership with Richard Petty Motorsports NASCAR team as a sponsor of 15 races in 2012. Earlier this year, we also completed a state-of-the-art research and development facility in Smithfield, Virginia, that will produce innovations that drive growth," Pope commented.
"In our fresh pork and hog production businesses, fundamentals remained relatively supportive for most of fiscal 2012. For the year, fresh pork earnings were historically strong and profited from a continued robust export environment. Notwithstanding higher raising costs, we delivered margins in our targeted range for our hog production business. In addition, profitability in our international segment increased in the back half of the year," he said.
For the fourth quarter, fresh pork margins declined significantly from last year's exceptional levels and were below the normalized range at 1%, or $2 per head. An 11% drop in the USDA pork cutout accounted for the majority of the decline, as live hog prices were basically unchanged. The company processed 4% more hogs, while industry slaughter levels were 2% higher. Exports remained strong and resulted in a 13% increase in company shipments.
Operating margins for the full year were above the normalized range at 4%, or $8 per head, resulting from consistent supplies and solid demand, particularly in the export markets. Results declined from the prior year, as a 15% increase in live hog prices more than offset a 6% increase in the USDA pork cutout. The company processed 1% more hogs.
Packaged meats operating margins grew considerably in the fourth quarter and were above the normalized range at 7%, or $.16 per pound, as the business benefited from a more coordinated and focused sales strategy, increased investment in marketing talent and consumer advertising, and lower raw material costs. Sales tonnage increased marginally. The company gained share in several strategic product categories including bacon and hot dogs. In addition, the company expanded distribution in BBQ, deli meats, dry sausage, ham steaks, and portable lunches and achieved sales and volume growth in its Armour, Farmland, and John Morrell brands.
For the full year, packaged meats margins grew $.02 per pound and were at the high end of the normalized range at 7%, or $.15 per pound, as the company continued to improve its product mix and employ strong pricing discipline to offset higher raw material costs. Although overall tonnage remained flat, volume of the company's core brands increased 2%.
Fourth-quarter hog production operating margins, excluding insurance reimbursements of $16.8 million, were below the normalized range at 3%, or $6 per head. Results were favorably impacted by sales price premiums and risk management activities, which protected margins. Year over year, live hog market prices decreased 1%, while raising costs rose to $65 per hundredweight versus $57 per hundredweight. Volumes declined 2%. Year-end margins, excluding net litigation charges of $22.2 million, were in the normalized range at 6%, or $12 per head, but declined slightly from the prior year as an 18% increase in raising costs more than offset a 15% improvement in live hog market prices. Results were bolstered by sales price premiums and risk management activities. Live hog market prices increased to $65 per hundredweight compared to $57 per hundredweight, while raising costs rose to $64 per hundredweight versus $54 per hundredweight. Volumes declined 4%.
Source: Smithfield Foods Inc.