Smithfield Farms eyes growth in future quarters

Scott Kitun/The Medillian

Scott Kitun/The Medillian

Smithfield Foods Inc. sees its net income rise more than 3 percent in the third quarter as the world’s largest pork producer was assisted by higher sales of its packaged meat products.

In the quarter ended Jan. 27, net income rose 3 percent to $81.5 million, or 58 cents per diluted share, from the $79 million, or 49 cents per share, in the year-ago period.

The Smithfield Va. –based company reduced its diluted shares by 13 percent in the third quarter when it bought back 8.2 million shares for $174 million.

Excluding early debt extinguishment charges and consolidation costs of $5.8 million at Spain’s Campofrio, adjusted earnings were 69 cents per share, compared with 51 cents per share estimated by analysts.

Another major contributor to the company’s third quarter performance was a lower than expected tax rate, which resulted in a 68 percent tax reduction of $30.4 million from the $44.6 million paid in the year-ago period.

Quarterly sales rose 3 percent to $3.58 billion from $3.47 billion this period last year, outperforming Wall Street’s estimate of $3.53 billion. The Smithfield Va. –based company experienced double-digit growth in the Eckrich and Armour sausage brands.

“We gained market share in the bacon and dinner sausage categories,” President and CEO C. Larry Pope said.

Executives at the company added that hog production margins were down almost 8 percent this quarter, partly due to slumping live hog market prices and increased rearing costs.

Davenport & Co. analyst Ann Gurkin said, “Expectations are that hog production will return to profitability by next year.”

Smithfield executives agreed that the company 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 drive U.S. consumers to switch to more affordable meats like chicken.

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.

“We are actively working to mitigate commodity risk,” Pope said.
With the company easily beating Wall Street expectations on both EPS and sales during what is traditionally a weak production quarter for the industry, shares were up 10 percent by midday, or $2.32, to $24.62.

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