US meat producer Smithfield Foods aims to drive increased sales at its packaged meats business this calendar year, as it reaps the benefit of restructuring moves and increased market prices at its hog and pork units.
The company today (11 March) said that it swung to a net profit in the third quarter of US$37.3m, from a net loss of $105.7m in the prior year.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
Addressing analysts during a conference call, Smithfield chief executive and president Larry Pope insisted that the group was benefiting from improved margins, particularly at its loss-making hog productions.
The company has made “tough decisions” at its hog business, including scaling back production with a number of plant closures. However, Pope said that these have improved the structure of Smithfield’s hog production business.
“Looking forward we don’t have nearly the mountain to climb that we have had in the past,” he said.
However, while Pope insisted that he “fully expects” to drive costs out of hog-raising production, he conceded that these initiatives will not come to fruition in the next 12 months, but will rather take “several years”.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataSmithfield management said that while it expects to benefit from increased prices at its fresh pork business, it does not expect higher prices to dampen domestic demand.
“Pork is still a very cheap commodity in this country… and so demand is still solid there. We are seeing some resistance [to higher prices] in the export market,” Pope said.
In packaged meats, the unit that has driven Smithfield’s profitability in recent years, Pope said that the company expected to see some pressure on margins going forward due to the higher prices on the pork markets.
“We could see some decline in packaged meat margin in this fourth quarter,” Pope warned.
Nevertheless, he insisted that the company did not expect this to have a detrimental effect on the bottom line.
“We had a target in this company of making 10 cents a pound, we are far in excess of making 10 cents a pound. I told you we would see margins decline when meat prices go back up,” Pope said.
“Hog production is going to be more profitable, our fresh pork business is going to be solid and our packaged meats business will probably move – I think we will easily maintain our ten cents [per lb target] – and above our 10 cents – but I don’t think we’ll stay at 18 cents.”
Management said that at the packaged meat business it intended to drive profits, even with lower margins, through top-line gains.
“2009 was restructuring. Calendar year 2010 is when we are tweaking the model… at the same time we are putting in place the marketing plan so that we are ready and starting to roll out marketing. But you won’t see the benefits until 2011. We know that we have to drive the top line,” Pope said.
