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Smithfield Foods Inc. (NYSE:SFD) is scheduled to report its third-quarter 2011 financial results on Thursday, March 10. Currently, the Zacks Consensus Estimate for earnings is 66 cents per share, and revenue is expected to be $3,168 million for the quarter to be reported.

Second-Quarter 2011: A Synopsis

Smithfield Foods, which faces stiff competition from Hormel Foods Corp. (NYSE:HRL), reported better-than-expected second-quarter 2011 results and posted robust pro forma earnings of 80 cents, beating the Zacks Consensus Estimate by 45.45%. Net income was $143.7 million, which was up by $170.1 million from the year-ago period.

Earnings were driven by disciplined management in the packaged meat and fresh pork segments, accompanied by improved fundamentals in hog production. GAAP earnings per share stood at 86 cents for the second quarter.

During the quarter, total sales shot up by 11.4% to $3.0 billion from $2.69 billion in the prior-year period. The improvement was primarily attributable to higher average unit selling prices in the Pork segment and higher Live Hog market prices. Smithfield’s marinated fresh pork and Kretschmar Deli Lines posted double-digit growth in the reported quarter.

While fresh pork and hog production margins improved dramatically, packaged meat margins were within the normal range due to high raw material prices. However, the company’s international segment remained consistent and posted strong results.

Management Guided

At its last earnings conference call, the company did not provide any guidance for third quarter. However, management expects good export demand and effective management control to drive high profits in the pork segment. In addition, management expects very little or no expansion in the U.S. hog production in 2011.

Third-Quarter 2011 Zacks Consensus

Analysts covered by Zacks expect Smithfield to post third-quarter 2011 earnings of 66 cents a share. The current Zacks Consensus Estimate represents a year-over-year growth of 200% and ranges from a low of 18 cents to a high of 55 cents.

The current estimate increased by 6 cents over the last 30 days, as three analysts revised their estimates upward. The current estimate increased by 10 cents from the estimate prevailing 90 days ago.

Mixed Earnings Surprise History

With respect to earnings surprises, Smithfield Foods has outpaced the Zacks Consensus Estimate by an average 19.70% over the last four quarters, ranging from negative 2.13% to positive 45.45%.

Our Recommendation

Smithfield Foods is the leader in the industry of processed meat and is the fifth-largest beef processor. The company has a restructuring program to consolidate and streamline the corporate structure and manufacturing operations in its pork group to improve operating efficiencies and increase utilization.

The plan resulted in the consolidation of several of the company’s Pork segment units into three large operating companies. However, these positive sides are offset by the highly competitive nature of the meat processing industry.

Further, Smithfield also would have to fight the diseases among livestock (primarily hog) and grains. The cyclical nature of the industry also poses great risk for Smithfield to operate smoothly.

Smithfield currently holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock, with a short-term Hold rating.

Source: Smithfield Foods Earnings Preview