Smithfield Foods, Inc. (NYSE: SFD) today reported earnings for the third quarter ended January 28, 2001 of $80.8 million, or $1.46 per diluted share, compared to $17.5 million, or $.36 per diluted share a year ago.
Results in the quarter included a nonrecurring, pretax gain of $76.5 million from the sale of 6.7 million shares of IBP, inc. The company estimates that expenses incurred during the quarter related to the attempted merger and subsequent sale were $7.5 million. The after-tax gain on the sale, net of expenses, amounted to $43.6 million, or $.79 per diluted share. Excluding this nonrecurring gain, net income totaled $37.2 million, or $.67 per diluted share for the third quarter of fiscal 2001.
Net income in the first nine months of fiscal 2001 was $170.0 million, or $3.08 per diluted share, compared with net income of $46.6 million, or $.98 per diluted share in the same period last year. Excluding the nonrecurring gain, net income totaled $126.3 million, or $2.29 per diluted share. The third quarter and first nine months of fiscal 2001 benefited from the acquisition of Murphy Farms, which effectively doubled the size of the company’s hog raising operations. The third quarter and nine-month results for fiscal 2000 included only a one-month contribution from Murphy.
Sales in the third quarter were $1.5 billion, up from $1.4 billion in the same period a year ago. Sales rose 12 percent, due to a six percent increase in average unit selling prices for the company’s meat products and a four percent increase in overall sales tonnage.
Sales for the first nine months of fiscal 2001 were $4.4 billion, compared to $3.7 billion last year, a 17 percent increase. In the nine-month period, average unit selling prices for meat products rose 14 percent, while total sales tonnage remained essentially flat with the prior year.
Hog Production Group (HPG) operating profit of $31.0 million in the third quarter was more than double the same period a year ago, primarily the result of the substantial increase in the number of hogs produced and lower raising costs. Operating profit in the Meat Processing Group (MPG) grew 35 percent to $56.0 million from $41.5 million last year. This increase was the result of sharply higher processed meat margins, which more than offset disappointing margins on fresh pork.
“As expected, live hog prices declined appreciably from the second quarter,” said Joseph W. Luter III, chairman, president and chief executive officer. “However, fresh pork margins, which historically are very strong in our fiscal third quarter, fell well short of our expectations and deteriorated as the quarter progressed.”
HPG operating income for the first nine months was $214.9 million versus $42.8 million a year ago, benefiting from substantially higher live hog prices than last year and the impact of additional hog production related to the Murphy acquisition. MPG operating income totaled $80.6 million compared to $100.7 million in the prior nine-month period. MPG operating income suffered from live hog prices that were 20 percent above the same period last year, which resulted in sharply lower margins on fresh pork.
“After a six-month period in which the company’s Hog Production Group generated the vast majority of the company’s profits, the Meat Processing Group rebounded in the third quarter to produce almost two-thirds of the earnings,” said Mr. Luter. “This performance demonstrates, once again, the strength of our vertical integration strategy.”
Mr. Luter stated that he was pleased with the improvements being made in marketing fresh pork, despite the overall weak environment. “As we roll out our case-ready fresh pork program to food retailers, sales tonnage gains remain at a rate of over three times those of a year ago. While these operations have been burdened with startup losses as they gear up to efficient operating levels, we are very optimistic about the long-term benefits of this new direction for fresh pork”, said Mr. Luter.
“Beyond case-ready, our emphasis on branding fresh pork is working. This is reflected by the strong presence of our Smithfield Tender’n Easy brand and continued success of our Smithfield Lean Generation Pork brand, where volume growth reflects a nearly 20 percent increase over the prior year,” he said.
Looking forward to the fourth quarter, Mr. Luter said that he is optimistic that earnings will be strong and likely exceed those of the prior year. He cautioned, as he has many times in the past, quarter-to-quarter earnings in the fresh meat industry are difficult to predict and subject to wide swings over short time periods. “Given our progress to date, fiscal 2001 certainly will be another record year for the company. Fiscal 2001 will mark the fourth year in the last five in which we have achieved record earnings,” Mr. Luter said.
Consolidated Statements of Income
Smithfield Foods, Inc. And Subsidiaries
(In thousands, except
per share data)
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
January January January January
28, 2001 30, 2000 28, 2001 30, 2000
Sales $1,537,372 $1,377,166 $4,389,617 $3,749,710
Cost of sales 1,307,879 1,200,983 3,695,928 3,253,391
Gross profit 229,493 176,183 693,689 496,319
Selling, general and
expenses 124,460 99,215 336,722 290,521
Depreciation expense 31,145 28,430 92,324 79,104
Interest expense 22,657 20,370 71,052 51,663
Minority interests 2,559 921 1,391 2,807
Gain on sale of
IBP common stock (76,480) — (76,480) —
income taxes 125,152 27,247 268,680 72,224
Income taxes 44,303 9,759 98,686 25,592
Net income $80,849 $17,488 $169,994 $46,632
Net income per
Basic $1.49 $.37 $3.12 $1.00
Diluted $1.46 $.36 $3.08 $.98
Basic 54,440 47,800 54,525 46,570
Diluted 55,273 48,413 55,260 47,366
Smithfield Foods was ranked the number one Fortune 500 food stock in total return to investors and placed in the top 15th percentile in total return to investors among all Fortune 500 companies over the past 10 years. With annual sales of $5.2 billion, Smithfield Foods is the leading processor and marketer of fresh pork and processed meats in the United States, as well as the largest producer of hogs. For more information, please visit http://www.smithfieldfoods.com .
This news release may contain “forward-looking” information within the meaning of the federal securities laws. The forward-looking information may include statements concerning the Company’s outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. The forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the statements. These risks and uncertainties include availability and prices of live hogs, raw materials and supplies, live hog production costs, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards and actions of domestic and foreign governments.