China’s giant pork producer Zhongpin Inc. plans to increase its focus on prepared pork products as Chinese consumers embrace more easy-to-complete-and-serve meals, the company said in a news release announcing its second quarter earnings.
Seeking higher margin products, the company said results reflect this shift with lower tonnage, prices and sales revenues from frozen pork and higher numbers for prepared products in the quarter ended June 30.
Zhongpin now offers more than 440 types of products, including meal kits.
Zhongpin reported higher sales revenues and lower net income for the three months ended June 30 versus a year ago. For full financial details click here.
Pork industry consolidation
"The continuing intense competitive pressure due to the ongoing pork industry consolidation in China, and higher costs generally in China, have reduced our gross profit margin and increased our operating costs for this quarter and this year," said Xianfu Zhu, chairman and chief executive officer for Zhongpin.
"Pork prices were lower than expected, mainly due to intense competitive pressure as the industry continues to consolidate. Hog prices also declined, but not as rapidly as pork prices.
Those were the main factors for our lower gross profit margin in the second quarter compared with last year's quarter,” he added.
Zhongpin Chief Financial Officer Warren Wang predicted average hog prices in China would decrease by 15 percent to 20 percent in 2012 due to aggressive price competition including aggressive pork product promotion efforts.
Zhongpin continues to expand
"We continued to expand our operations in the second quarter, but at a slower rate, to help secure our long-term growth and achieve a much stronger market position in the years ahead,” explained Zhu.
The company recently finished constructing additional annual production capacity of 50,000 metric tons for prepared pork products bringing total annual production capacity to 954,760 metric tons for all products at the end of July.
"I believe the long-term outlook for China's pork industry and for Zhongpin is quite good, but given the pork industry's massive consolidation that is expected to continue with increasing intensity in the next several years, we believe that delivering a sustained pattern of higher net income and higher net cash flows in those coming years will be a difficult challenge,” Zhu concluded
Source: Argentine Beef Packers S.A.
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