Smithfield Foods reported a 36 percent drop in earnings for the first quarter of fiscal year 2014, with the quarter ending July 28. Higher production costs and a decline in exports led to the drop in earnings, the company reported on August 6.
"The operating environment in fresh pork and our international business was difficult in the first quarter. Normal seasonal weakness in fresh pork was exacerbated by declines in key export markets, namely Japan, as well as China and Russia. Higher raising costs in our hog production businesses in Eastern Europe and Mexico adversely impacted earnings in our international segment," said C. Larry Pope, president and chief executive officer of Smithfield Foods.
Net income for the world's largest pig producer and pork processor was at $39.5 million, down 36 percent from the $61.7 million reported during the same quarter of fiscal year 2013.
Pope noted that while the net income results were disappointing, the company's integrated model helped lessen the adverse impact of weakness in other segments.
The company delivered volume growth in six of its twelve core brands: Smithfield, Armour, Kretschmar, Curly's, Margherita and Carando. The company gained market share in several strategic product categories including cooked dinner sausage, dry sausage and marinated pork. In addition, the company increased distribution of its Eckrich cooked dinner sausage, Gwaltney hot dogs, Smithfield bacon, Curly's BBQ, Armour dry sausage, Armour portable lunches and Smithfield and Farmland marinated pork.
Smithfield optimistic about future financial picture
"The first quarter should mark the low point of the year for Smithfield. We will continue to execute on our long-term strategic growth plan, focused on improving our earnings stream and migrating Smithfield further towards a consumer packaged meats company," Pope said.
The focal points of the company's growth strategy include increased consumer marketing, product innovation and capital investment to maximize Smithfield's existing business by improving its product mix toward differentiated, branded and value-added products, both domestically and in the export markets. "We are leveraging our integrated platform to augment this strategy," he commented.
Smithfield and Shuanghui merger still pending
As previously announced on May 29, 2013,
Smithfield and Shuanghui International Holdings entered into a merger agreement that values Smithfield at approximately $7.1 billion, including the assumption of Smithfield's net debt. Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, Shuanghui will acquire all of the outstanding shares of Smithfield for $34 per share.
The transaction, which is expected to close in the second half of 2013, remains subject to certain conditions, including approval by Smithfield's shareholders in a Sept. 24 vote, review by the Committee on Foreign Investment in the United States and other customary closing conditions.