Global meat producer,
Smithfield Foods, Inc.
) has repurchased 7.0 million of its shares for approximately
$148 million from COFCO Corporation, China's largest national
agricultural trading and processing company. The repurchase was
made after COFCO decided to sell its stake in Smithfield which
was purchased back in 2008.
The company's commercial relationship with the Chinese company
will continue despite the buyback. The U.S. pork processor
generates huge profits from exports. Smithfield's export sales in
fiscal 2012 comprised approximately 18% of Pork segment
The growing demand for fresh pork, especially from China, will
further boost the company's export sales. We believe that China
will continue to be a key market for Smithfield, going
Despite strong export demand for pork, increased industry
supplies and weak pork demand from U.S. consumers led to the
decline in Smithfield's bottom-line in the first quarter of
fiscal 2013. Earnings of 40 cents per share in the first quarter
fiscal 2013 lagged both the Zacks Consensus Estimate and
Sales were almost flat year over year at $3.1 billion,
primarily due to soft sales in the hog production and
international business. Operating profit declined 23.2% to $131.8
million during the quarter due to rising costs and sluggish
Nevertheless, we are impressed with the Smithfield's leading
market position in the industry. Smithfield is the largest hog
producer and pork processor in the world.
It is also the leader in numerous packaged meat categories and
includes popular brands such as Farmland, Smithfield, Eckrich,
Armour and John Morrell. Further, the company invests in brand
marketing and innovation in order to boost its top-line and
We currently have a long-term Neutral recommendation on
Smithfield. The stock carries a Zacks #3 Rank (a short-term Hold
rating), following mixed results in the first quarter. A peer
Tyson Foods Inc.
) also carries a Zacks #3 Rank.
SMITHFIELD FOOD (SFD): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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