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Smithfield Profits Skyrocket Despite PEDv

When the largest pork producer in the U.S. -- Smithfield Foods -- was acquired by WH Group Limited, a Chinese company with large footprints in the Asian and European protein markets, it was big news. Speculation abounded about how the entry of a Chinese company would affect the U.S. hog industry.

Clarification of some of those effects comes this week with the announcement that Smithfield sales rose 3% in the first quarter of this year with a net income of $105.3 million. That total is 479% higher than total 2013 net income of $18.2 million and comprises a record high for quarterly net income, according to a Smithfield report.

"We are pleased to report a record first quarter with strong margin gains across all segments of our business. Our results reflect outstanding execution at the operating level, better markets, and an improved export environment owing, in good measure, to our strategic combination with WH Group. On that front, we are opportunistically pursuing exciting growth opportunities in the enormous and rapidly growing Chinese pork market that we expect will yield dividends for years to come," C. Larry Pope, president and chief executive officer, says in a company report. "At the same time, our fresh pork margins were above seasonal norms, as meat values outpaced the historical run-up in live hog prices. Our international segment continued as a solid contributor to our results, and our hog production business turned profitable. Operational improvement plans in place at both the farm and plant level are beginning to show in our results. Our recent merger of two of our independent operating companies, Smithfield Packing Company and Farmland Foods, into one is improving our competitiveness, and we are continuing our drive to achieve least-cost and best-in-class operations."

Specifically, total pork operating profit rose 40% to $180.2 million, while hog production operating profit increased to $9.5 million. International operating profit was the big winner in the first quarter of 2014, rising 158% to $36.9 million, while export sales volume rose 17%.

All this comes in spite of continued domestic and global challenges posed by ongoing difficulties caused by the porcine epidemic diarrhea virus (PEDv). This week, Smithfield CFO Tim Sullivan told the Wall Street Journal that company leaders expect as much as a 7% decline in U.S. hog numbers.


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