Weak export market bogs down Smithfield earnings

by Eric Schroeder
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SMITHFIELD, VA. — A challenging year in hog production due to a weak export market was in part to blame for a 49% decline in fiscal 2013 earnings at Smithfield Foods, Inc. Net income in the year ended April 28 was $183.8 million, equal to $1.26 per share on the common stock, which compared with $361.3 million, or $2.23 per share, in fiscal 2012. Net sales increased narrowly to $13,221.1 million from $13,094.3 million.

For the fourth quarter ended April 28, the company had income of $29.7 million, or 21c per share, which compared with income of $79.5 million, or 50c per share, during the same quarter of the previous year. Sales for the quarter were $3,320.7 million, up from $3,209.2 million.

“Driven by both top- and bottom-line growth in packaged meats, these earnings reflect our continued transformation into a more value-added consumer packaged meats company,” said C. Larry Pope, president and chief executive officer. “For the full year, packaged meats operating profit increased nearly $70 million, or 17%, year over year and volume was up 4%. Our core brand volume grew even more substantially, up 5%.”

The Pork segment had operating profit of $631.6 million in fiscal 2013, up 1% from $623.7 million during fiscal 2012. Sales for the segment were $11,076.1 million, down slightly from $11,093 million.

Within the Pork segment, Fresh Pork saw operating profit decline 27% during the year while Packaged Meats operating profit increased 17%. Total sales in the Fresh Pork segment fell 3% to $4,924.1 million in fiscal 2013, while total sales of Packaged Meats increased 2% to $6,152 million. Smithfield said Packaged Meats sales grew across all trade channels and in 8 of the company’s 12 core brands.

“Double-digit gains were realized for Smithfield bacon, Armour dry sausage, and Smithfield and Farmland marinated pork,” Mr. Pope said. “In the deli channel, our Eckrich deli meats also finished the year up double digits.”

Smithfield said market share improved in bacon, cooked dinner sausage, dry sausage and marinated pork. In addition, the company broadened distribution of its core brands in a number of product categories, including cooked dinner sausage, deli meats, dry sausage, marinated pork, packaged lunchmeat and portable lunches.

The Hog Production segment suffered an operating loss of $119.1 million during fiscal 2013, which compared with operating income of $166.1 million in fiscal 2012. Sales for the segment were $3,135.1 million, up 3% from $3,052.6 million.

“Fiscal 2013 was a challenging year in hog production with higher grain prices due to last summer’s drought and, more recently, export market disruptions,” Mr. Pope said. “For the industry, pork exports were down in nearly every major market in the fourth quarter with volumes to China and Russia falling over ractopamine certification requirements and the weakening yen resulting in lower shipments to Japan. This decline in pork exports pushed production back onto the domestic market and negatively impacted our hog production and fresh pork businesses in the fourth quarter.”

Following the announcement on May 29 that Shuanghui International Holdings Ltd. has agreed to acquire Smithfield for approximately $7.1 billion, Smithfield said it will no longer hold conference calls to discuss its quarterly and annual results.

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