Smithfield Foods Inc.'s (SFD) fiscal first-quarter earnings dropped 25% as the pork producer saw weaker results from its fresh pork business and higher costs weigh on margins.
"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," said President and Chief Executive C. Larry Pope.
Smithfield--whose brands also include John Morrell, Armour and Farmland--has seen its revenue increase in recent quarters on strong demand from foreign markets.
But like other livestock producers, high feed costs have challenged its bottom line. In July, Mr. Pope called for the U.S. government to waive its mandate requiring the blending of ethanol into the nation's gasoline supply as a severe drought batters the nation's corn crop and drives up prices.
Smithfield buys roughly 128 million bushels of corn and corn equivalents each year to feed its hogs, making it one of the largest consumers of the grain in the U.S., Mr. Pope had said.
Smithfield--the largest U.S. pork producer by volume--has taken positions in futures markets to control its costs for feed and, to a lesser extent, revenue from sales. The company has previously predicted its hog-raising business would likely turn a profit in every quarter during fiscal 2013.
"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 Mr. Pope, adding that the company expects margins for its packaged meats business to be at the high end of the normalized range with 2%-3% volume growth in fiscal 2013.
For the quarter ended July 29, Smithfield reported a profit of $61.7 million, or 40 cents a share, down from $82.1 million, or 49 cents, a year earlier. The year-earlier period included a 20-cent charge related to litigation settlement.
Sales were essentially flat at $3.1 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of 44 cents on revenue of $3.15 billion.
Gross margin narrowed to 10.7% from 12.4% as costs rose, including raising costs for the company's hog production business...
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Source: Argentine Beef Packers S.A.
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