Smithfield results beat on strong demand for packaged meat

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Smithfield Foods Inc, the largest U.S. hog producer, reported third-quarter results that beat Wall Street estimates, helped by higher sales of packaged meat products such as Smithfield bacon and Eckrich and Armour sausages.

Shares of the company rose 9 percent to $24.37 in morning trade on the New York Stock Exchange.

The company said higher demand from international markets, particularly from Poland and Romania, drove growth in its packaged meats business.

"Our packaged meats business is on fire," Chief Executive Larry Pope said on a conference call with analysts.

Sales of packaged meat, which contributes nearly half of total revenue, increased 4 percent to $1.76 billion while volume rose 5 percent.

Smithfield, which was founded in 1936 as a pork processing operation, forecast packaged meat volume growth of at least 2 percent to 3 percent in 2013, a trend it expects to continue in 2014.

The company said it expects lower supplies and higher prices for competing products, such as beef and chicken, to push up pork retail prices in 2013.

The worst drought in the U.S. Midwest last year pushed up prices for corn feed, and many livestock producers culled supplies to combat the effect.

HOG PRICES EXPECTED TO IMPROVE

Smithfield said hog production margins were down 8 percent, hurt by decreased live hog market prices and increased rearing costs, but it expects improvements through the fourth quarter and next fiscal year.

Hog prices have been falling in the last three months as higher payroll taxes and gasoline prices drove U.S. consumers to switch to more affordable meats like chicken.

Moreover, Russia and China, the world's largest pork consumer, have raised concerns about the feed-additive ractopamine used in pork produced in the United States, hurting exports.

Last month Smithfield said it will be able to supply pork that is ractopamine-free in time to meet China's March 1 deadline.

"They are well-positioned to benefit from export demand," Davenport & Company LLC analyst Ann Gurkin told Reuters, adding that the company would gain from the expected production cut-backs in the European Union.

Gurkin also expects hog production to return to profitability in 2014, driven by Smithfield's ongoing cost management.

The company said it expects losses per head in the mid-single digit range for 2013 hog production but sees hog prices increasing in the fourth quarter.

"The whole (hog production) economic model will correct," Pope said.

THIRD-QUARTER RESULTS BEAT

Smithfield's net income rose to $81.5 million, or 58 cents per share, in the third quarter ended January 27 from $79 million, or 49 cents per share, a year earlier.

Analysts on average had expected a profit of 50 cents per share, according to Thomson Reuters I/B/E/S.

The company said third-quarter earnings benefited from a lower-than-expected effective tax rate, especially in its international business.

Revenue rose 3 percent to $3.58 billion, above market estimates of $3.53 billion.

(Reporting Maria Ajit Thomas in Bangalore and Lisa Baertlein in Los Angeles; Editing by Don Sebastian)

 



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