Smithfield Fails to Bring Home the Bacon


Smithfield Foods Inc. (NYSE: SFD) reported second-quarter fiscal 2013 results before markets opened this morning. The food processing firm reported adjusted diluted earnings per share (EPS) of $0.61 on revenues of $3.23 billion. In the same period a year ago, it reported EPS of $0.76 on revenue of $3.31 billion. This morning's results also compare to the Thomson Reuters consensus estimates for EPS of $0.45 and $3.3 billion in revenue.

On a GAAP basis, Smithfield posted EPS of $0.07 in its second quarter, compared with EPS of $0.74 in the year-ago quarter. The company recorded a pretax charge of $120.7 million ($0.54 per share) related to the early repayment of debt.

The company's CEO said:

Our solid second quarter performance reflects the results of our ongoing efforts to deliver higher quality and more consistent earnings to our shareholders led by growth in our packaged meats business, even when faced with challenging commodity markets.

In comments on the company's outlook, Smithfield said it expects margins on its packaged meat products to be at the high end of its normalized range on volume growth of 2% to 3%. Smithfield said the same thing at the end of last quarter, and the company's international outlook is also unchanged: "in the upper half of the normalized range" for the full year.

Operating margins in the company's fresh pork division were 8% in the quarter, and packaged meat margins rose to 7%. Volumes were up 3% in fresh pork and 2% in packaged meats. Hog production operating margins fell to -4%, and Smithfield lost $8 per head on its hog production.

The CEO also appears to believe that Smithfield stock is undervalued and that if the company just buys back more stock, investors will get the message: "We continue to believe that our current stock price undervalues our company, witnessed by our significant share repurchases over the past year and a half."

Beginning in July of last year, the company has repurchased 17% of its outstanding shares. Since then the share price has risen by just 1.5%. Maybe share buybacks are less important to investors than good execution.

Shares are inactive in premarket trading this morning, having closed at $22.90 last night, in a 52-week range of $17.55 to $25.12. Thomson Reuters had a consensus analyst price target of around $22.60 before today's results were announced.

Paul Ausick

Filed under: 24/7 Wall St. Wire, Commodities, Earnings, Food Tagged: SFD