Smithfield Foods Inc. Earnings Cheat Sheet: Increased Costs Strains Margins as Profit Drops

Smithfield Foods Inc. (NYSE:SFD) reported its results for the second quarter. Smithfield Foods is a hog producer and pork processor that produces and markets a number of fresh meat and packaged meats products both domestically and internationally.

Smithfield Foods Earnings Cheat Sheet for the Second Quarter

Results: Net income for Smithfield Foods Inc. fell to $120.7 million (74 cents per share) vs. $143.7 million (86 cents per share) a year earlier. This is a decline of 16% from the year earlier quarter.

Revenue: Rose 10% to $3.3 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: SFD reported adjusted net income of 76 cents per share. By that measure, the company beat the mean estimate of 69 cents per share. It beat the average revenue estimate of $3.21 billion.

Quoting Management: “Our business is thriving and we are proud to deliver yet another quarter of quality and consistent earnings to our shareholders led by strong results in our Pork segment,” said C. Larry Pope, president and chief executive officer.”Importantly, we were able to grow the top line in our packaged meats business in the second quarter — while exhibiting strong pricing discipline to maintain margins in the normalized range — by leveraging our closely coordinated sales and marketing platform to expand share and distribution. Our Farmland, Smithfield, Armour and Curly’s brands all achieved double-digit retail sales and volume growth in the quarter.”

Key Stats:

The company has now topped analyst estimates for the last four quarters. It beat the mark by one cent in the first quarter, by 3 cents in the fourth quarter of the last fiscal year, and by 18 cents in the third quarter of the last fiscal year.

Gross margin shrank 2.1 percentage points to 12.3%. The contraction appeared to be driven by increased cos! ts, whic h rose 12.7% from the year earlier quarter while revenue rose 10%.

Revenue has risen the past four quarters. Revenue increased 6.6% to $3.09 billion in the first quarter. The figure rose 7.1% in the fourth quarter of the last fiscal year from the year earlier and climbed 10.5% in the third quarter of the last fiscal year from the year-ago quarter.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the third quarter has moved down from 63 cents a share to 53 cents over the last ninety days. For the fiscal year, the average estimate has moved up from $2.30 a share to $2.41 over the last sixty days.

Competitors to Watch: Hormel Foods Corporation (NYSE:HRL), Tyson Foods, Inc. (NYSE:TSN), ZHONGPIN INC. (NASDAQ:HOGS), Pilgrim��s Pride Corp. (NYSE:PPC), Seaboard Corporation (AMEX:SEB), ConAgra (NYSE:CAG) and Monsanto (NYSE:MON).

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)