Smithfield Lags Estimates

Zacks

Smithfield Foods Inc. (SFD) posted adjusted earnings of 40 cents per share in the first quarter of fiscal 2013, which lagged the Zacks Consensus Estimate by 5 cents. The results also lagged the prior-year earnings of 49 cents per share by 42.0%, due to weak margins in fresh pork and hog production business.

During the quarter, total sales slipped a mere 0.1% year over year to $3.10 billion. The decline was primarily attributed to soft sales in the fresh pork and hog production. Total sales also lagged the Zacks Consensus Estimate of $3.13 billion.

Operating profit declined to $131.8 million from $173.2 million during the quarter due to rising cost and lower sales.

Segment and Margin Details

Pork: Sales in the pork segment remained more or less flat at $2.6 billion compared with previous year. While sales of fresh pork improved to $1.26 billion from $1.25 billion in the prior-year quarter, sales of packaged meat slipped marginally to $1.33 billion compared with $1.34 billion in the prior-year period.

Operating profit in the pork segment dropped 13.2% to $118.6 million from $136.7 million in the prior-year quarter. Operating margin in the pork segment remained flat at 5% during the quarter. Margins at fresh pork were below the normalized range due to an 8% decline in the USDA pork cutout. However, packaged meats margins improved on the back of lower raw material costs, enhanced product mix and higher strategic investment in advertising.

Hog Production: Hog Production slipped 2.8% year-over-year to $728.8 million compared with $749.8 million in the prior-year period. The segment’s operating profit declined 66.8% to $23.1 million compared with $69.7 million in the prior-year quarter. Operating margins also declined steeply by 600 basis points to 3% in the quarter due to higher raising costs.

International Segment: The segment also reported a decline of 7.7% to $346.8 million in the first quarter of fiscal 2013 compared with $375.0 million in the prior-year period. The segment’s operating profit improved to $15.8 million and 5% of sales compared with break-even level in the prior year, led by strong results in the company's Eastern European hog production operations and increased volume and sales in its meat processing operations in Poland and Romania.

Other Financial Details

Interest expense decreased 11.6% in the first quarter of fiscal 2013 to $42.5 million, reflecting the company’s successful efforts in reducing leverage and interest expense.

During the quarter, Smithfield repurchased 7.4 million shares worth $145 million.

Smithfield, which competes with Hormel Foods Corp. (HRL) and Tyson Foods Inc. (TSN), holds a Zacks #5 Rank (short-term ‘Strong Sell’ rating).

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