Smithfield Foods Inc. (SFD) reported results for the third quarter of fiscal 2010 with earnings of 22 cents per share. Earnings were above the Zacks Consensus Estimate of 19 cents and were also up compared to a loss of 75 cents in the prior-year quarter.
Net sales for the quarter declined 13.8% year-over-year to $2.9 billion, attributable to declines in three of the five operating segments of the company. The Pork segment contracted 15.1%, Packaged Meat declined 18.3% while the Other segment declined 0.7%. These were partially offset by increases in the International segment (+3.0%) and Hog Production (+4.7%).
Net sales in the Pork segment declined as fresh pork operating margins were lower compared to the year ago quarter, due to reduction in hog slaughter levels that negatively impacted results. Furthermore, fresh pork volumes in the third quarter declined 7% year-over-year.
Export volume in the third quarter were also flat compared to the same period last year, despite closed export markets in China and Russia, both of which are important markets for U.S. pork.
Revenues in the packaged meats segment also declined year-over-year due to planned volume decreases. This was the result of plant closures in the Pork group restructuring plan.
The International segment witnessed revenue growth driven by strong performance in Poland and brand growth as sales volumes increased 24%. Revenue growth in Hog Production was driven by a 12% improvement in live hog market prices in the U.S. and a 16% reduction in domestic raising costs.
Live hog market prices in the U.S. increased to an average of $44 per hundredweight compared to $40 per hundredweight in the year-ago period. Domestic raising costs decreased to $51 per hundredweight from $61 per hundredweight in the prior year. Furthermore, the company's international hog production operations in Poland, Romania and Mexico also delivered strong performance.
Revenues in Other segment contracted marginally year-over-year attributable to previous year’s sell-off of the company's live cattle operations. This was partially offset by improvements in live turkey
Gross margin for the quarter expanded 733 basis points (bps) to 9.9% versus 2.5% in the comparable prior-year quarter. During the quarter, the company reported an operating profit of $96.5 million, compared to a loss of $135.5 million in the prior-year quarter.
Concurrent with the earnings release, management provided outlook for fiscal 2010. The company anticipates that fresh pork margins will improve as hog slaughter levels continue to decline and the Sioux City plant is closed in April.
For fiscal 2011, management expects hog production to increase dramatically year-over-year. In addition, pork segment is also expected to deliver a strong performance, owing to the restructuring plan that will be complete.