Smithfield 3Q Profit Falls On Higher Costs
RICHMOND, Va. (AP) — Smithfield Foods posted a 61 percent decline in third-quarter earnings Thursday on higher costs and charges related to the pork producer's share of a Spanish processed-meats company.
The Smithfield, Va. company, whose brands include Armour, Farmland and its namesake, said it earned $79 million, or 49 cents per share, for the three months ended January 29, down from $202.6 million, or $1.21 per share, a year ago.
Excluding a charge for early debt extinguishment and its share of consolidation costs at Spain's Campofrio, adjusted earnings were 69 cents per share. Analysts surveyed by FactSet expected earnings of 65 cents per share and Smithfield's stock edged higher in premarket trading.
Revenue increased 9 percent to $3.48 billion thanks to higher selling prices and strong demand for pork, particularly in Asia. But the revenue figure fell just short of Wall Street expectations of $3.5 billion for the quarter. Fresh pork sales rose more than 19 percent and packaged meat sales rose more than 6 percent.
"As I look at the quarter and think about where we are from a business standpoint ... I am sleeping very well," CEO C. Larry Pope said in a conference call with investors. "As I said a couple of years ago, I wasn't sleeping through the night. I assure you I am sleeping very well these days. The business is performing very, very well."
However, Smithfield's cost of sales increased 13.5 percent as it said raw material prices rose significantly and drove its gross profit down nearly 17 percent.
Pork producers like Smithfield are caught in a tug of war with consumers. The company needs to hike prices to offset rising commodity costs, namely the corn it uses for feed. But consumers are still extremely sensitive to price changes in the current economy.
Smithfield risks cutting into its own sales should consumers cut back or buy cheaper meats, such as chicken.