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Smithfield Foods, Inc. (NYSE:SFD) is scheduled to announce its first quarter 2012 results on September 8, 2011, and we see a positive trend among the analyst estimates at this point. Currently, the Zacks Consensus Estimate is 68 cents per share and sales estimate is around $3,126 million.

Fourth Quarter Overview

Smithfield swung to fourth-quarter 2011 earnings of 85 cents per share - record on June 16, which surpassed the Zacks Consensus Estimate of 82 cents by 3.7%. However, these results exclude a pre-tax charge on the early retirement of debt and prior-year restructuring charges.

Including the charge, Smithfield posted a robust fiscal fourth-quarter profit of $98.4 million, or 59 cents per share, fueled by strong returns in its fresh pork and hog-production sectors. The Smithfield-based hog producer and pork processor also reported a record profit of $521 million, or $3.12 per share, for its fiscal year ended May 1, 2011.

Smithfield lost $101.4 million, or 65 cents a share, in its 2010 fiscal year, and $4.6 million, or 3 cents a share, in the fourth quarter of 2010.

Sales increased 7.1% to $3.12 billion in the fourth quarter, exceeding the Zacks Consensus Estimate of $3.23 billion. Gross margin, a key measure of financial health, jumped to 14.7% in the quarter, up from 6.2%.

The company also unveiled a new $150 million stock buyback plan that will be executed over the next two years.

Agreement with Analysts

The analysts expect the company to follow the trend of beating its earnings estimates, as it has been doing since the last three quarters. Moreover, the analysts expect the company to provide improved packaged meats business and maintain a strong pricing discipline to deliver solid margins going forward in 2012. With an upside in the current quarter and fiscal year, the estimate revision trends justify a positive sentiment on the stock.

Out of the 15 analysts providing estimates for the current quarter, 3 of them have revised their estimates upwards over the past 30 days, whereas only one upgraded his estimate over the past 7 days. None of the analysts downgraded the stock.

For the second quarter of 2012, we see a similar trend with 4 out of the 14 analysts giving a positive signal over the past 30 days, while only 2 revised their estimates upwards over the past 7 days. None of the analysts revised their estimates in the negative direction.

For fiscal year 2012, 3 out of the 16 analysts raised their estimates over the last 30-day period, while only one downgraded his estimate. Over the past 7 days, one analyst had a positive opinion and one had a negative opinion on the stock. However, the analysts are not very positive on fiscal year 2013 as none of the analysts have raised their estimates. One analyst lowered his estimate over the past 30 days, while one reduced his over the past 7 days.

For 2012, the company is very hopeful as it is planning to achieve profitable top-line growth in its consumer packaged meats business, which will be fueled by increased consumer marketing of the company’s key brands. Further, Smithfield’s strong exports should yield solid fresh pork margins in fiscal 2012.

The declining trend in estimates point to the fact that there was no major catalyst during the fiscal 2013 that could drive results.

Magnitude of Estimate Revisions

Over the past 30 days, Smithfield has increased its estimate by a penny to 68 cents for the current quarter and from 66 cents to 69 cents for the next quarter of 2012.

The estimates have moved up by 4 cents in the past 30 days for fiscal year 2012, while it declined by 3 cents for fiscal year 2013.

Smithfield, together with its subsidiaries engages in the production of hog, and processing of pork and beef worldwide. The company offers fresh pork products, packaged meats products, dry meat products and ready-to-eat foods. Smithfield Foods is also involved in turkey production and hatchery operations.

Management has undertaken restructuring initiatives in an effort to save costs and boost profitability, which augur well for future operating performance. Further, the company’s vertical integration and product mix help increase margins. We maintain our long-term recommendation on Smithfield as Outperform, while the company has a Zacks #3 Rank, implying a short term Hold rating.

However, intense competition from other established players and cyclical nature of the company’s operations undermine the company’s future growth prospects and profitability. The main competitors are Hormel Foods (NYSE:HRL) and Tyson Foods (NYSE:TSN).

Source: Smithfield Foods: Earnings Preview

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