Pork producer, Smithfield Foods Inc. (NYSE: SFD) reported on Tuesday that its fiscal first-quarter earnings fell by 25% as the company witnessed marked weakness in its fresh pork business while higher costs also weighed on margins.
Smithfield, which owns popular brands such as John Morrell, Armour and Farmland, saw its revenue growing strongly in recent quarters thanks to sustained demand from international markets; nonetheless, rising feed-costs badly affected its bottom line, just as it did for other meat producers.
Commenting over the results, Company’s President and Chief Executive, C. Larry Pope, said “Naturally, we were disappointed with the poor performance of our fresh pork business, as the fresh pork complex remained under pressure due to higher supplies and weak domestic retail demand, although exports remained historically strong.”
Earlier in July,Pope in the wake of rising input costs (corn prices) appealed the U.S. government to relax its directive necessitating the blending of ethanol into the nation’s gasoline supply as a severe drought in the Midwest region pushed up corn prices to record high levels. At present, Smithfield buys about 128 million bushels of corn and corn equivalents annually to feed its hogs, making it one of the largest consumers of the grain in the U.S.
Smithfield in order to control soaring feed costs has now taken positions in the futures markets.
“Despite headwinds in our hog production business, improving fresh pork results combined with robust packaged meats profitability and higher packaged meats volumes, as well as strong international segment profitability should fuel solid results in fiscal 2013,” said Pope, while addressing analysts in the conference call.
Pope anticipates the margins for its packaged meats business will be at the higher end of normalized range while volume will grow by 2%-3% in the fiscal 2013.
For the quarter which ended July 29, the company reported a profit of $61.7 million, or 40 cents a share, compared to $82.1 million, or 49 cents, in the year earlier quarter. In the year earlier period, earnings included a charge of 20 cents a share for litigation settlement.
Sales were almost flat at $3.1 billion.
Analysts polled by Thomson Reuters had forecasted earnings of 44 cents on revenue of $3.15 billion.
Gross margin contracted stood at 10.7% down from 12.4%, as costs soared.
While sales in hog-production segment dipped 2.8%, sales from international business slumped 7.5%.
According to the Company, its hog-raising business is expected to swing into profits for every quarter of fiscal 2013.
SFD shares rose 3.31% to $19.96 on Tuesday.
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