Smithfield Foods Suffers 63% Plunge in 4Q Profits as Costs Jump


On the heels of its $4.8 billion buyout from a Chinese company, meat producer Smithfield Foods (NYSE:SFD) revealed a deeper-than-expected 63% plunge in fiscal fourth-quarter profits on Friday amid mounting costs and shrinking margins.

The earnings miss comes just over a week after the world’s largest pork producer agreed to be acquired by Shuanghui International in what would be the biggest Chinese takeover of a U.S. company.

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The company said it earned $29.7 million, or 21 cents a share, last quarter, compared with a profit of $79.5 million, or 49 cents a share, a year earlier. Analysts had been calling for far more robust EPS of 43 cents. The year-earlier period included an insurance settlement of $16.8 million, or 6 cents a share.

Sales inched up 3.5% to $3.32 billion, topping the Street’s view of $3.27 billion.

Smithfield’s results were hurt by a 6% jump in input costs and a 10% increase in selling, general and administrative expenses. As a result, gross margins shrank to 8.5% from 10.7%

“Driven by both top and bottom line growth in packaged meats, these earnings reflect our continued transformation into a more value-added consumer packaged meats company,” CEO C. Larry Pope said in a statement. “Fiscal 2013 was a challenging year in hog production with higher grain prices due to last summer's drought and, more recently, export market disruptions.”

Smithfield said it continues to expect its deal with Shuanghui International to close in the second half of 2013, subject to approval from regulators, including the Committee on Foreign Investments in the United States, or CFIUS.

Despite some economic and security tensions between the U.S. and China, CFIUS is expected to approve the Smithfield transaction as it doesn’t appear to have direct national-security implications.

The meat producer said it has decided to discontinue conference calls to discuss quarterly and annual results in light of the transaction.

Shares of the Smithfield, Va.-based company were unmoved by the earnings miss, trading flat at $32.81 in premarket trading Friday morning. That is a slight discount to the proposed $34-a-share buyout offer, which represents a premium of 31% on Smithfield’s closing price the day before the deal was unveiled.