In its second-quarter results, the wholly-owned subsidiary of WH Group, increased sales from $3.3bn to $3.8bn, with consolidated operating profits up 190% to $260.2m over the same period. Net income stood at $142.9m, compared to $32.4m over the same period last year.
Significant rises in operating profit were seen in its fresh pork and hog production businesses, up 257% to $29.7m and 322% to $129m respectively. Operating margins within its hog production arm were 15%, or $37 per head – an all-time record, it said.
Despite flat sales in its packaged meats arm, operating profit fell from $118.m to $97.5m.
President and chief executive officer C Larry Pope, said its record results and strong earnings growth in the second quarter were driven by a number of factors. "Fundamentals were very supportive, particularly in our hog production segment, with tight supplies due to porcine epidemic diarrhoea virus (PEDv) and strong demand both domestically and internationally, which pushed hog production margins to record levels.
"At the same time, our management is intensely focused on implementing our organic growth plan, which is working. We have restructured and streamlined our fresh pork and packaged meats operations and are benefiting from our long-term strategy to intensify our consumer-focused marketing programs and foster innovation to improve our product mix toward differentiated, branded and value-added products."
He said the success of these plans yielded consistently solid margins in its packaged meat business, as well as gains in volume, market share and distribution across a number of its core brands and key product categories.
"Our strong performance was also propelled by our continued close collaboration with WH Group and Shuanghui, our sister company in China, to achieve synergies," he added.
Smithfield said its international operating margins increased to 8%, primarily due to significantly higher earnings in the company’s operations in Poland and Romania. Lower grain costs more than offset a decline in live hog prices.
Looking ahead, Pope said domestic protein demand was "impressive". "Although Russia has banned US pork imports, international demand from other countries remains strong.
"This, combined with lower domestic protein production, should support high hog and pork prices for the duration of 2014 and beyond. Notwithstanding a bullish hog production outlook, PEDv concerns seem to have thwarted market expansion for now. In addition, corn is currently trading at the lowest level in three years. This should translate into normalised fresh pork margins and high, above-normalised hog production margins in 2014."
Smithfield has also been collaborating more with WH Group, and said, for example, that its branded premium chilled fresh pork, sold at Smithfield kiosks in mainland China, was well received by consumers. It opened three new kiosks in July, bringing its total to 21, and said it planned to continue its expansion throughout China "to cover the major first-tier and second-tier cities by the end of the year".