We reaffirm our Neutral recommendation on
Smithfield Foods Inc
) following an assessment of its third quarter fiscal 2013
Why the Reiteration?
Smithfield reported its third quarter results on Mar 8, 2013
with both its earnings and sales exceeding the Zacks Consensus
Estimate. The company's earnings were however 15.9% lower than
the prior-year quarter due to weak margins in hog production
business and fresh pork category. Total sales increased 3.0% from
the prior-year quarter, driven by strong momentum in the packaged
meat business and solid contribution from international
operations. Also, lower meat and hog prices offset the tailwinds
from higher overall volumes. The company's operating margin
declined during the quarter due to weak fresh pork results and
higher raising costs.
Smithfield continues to expect packaged meat margins to
improve in the fourth quarter, driven by increased market share
gains and marketing of its core brands. However, the company
anticipates losses in the Hog Production segment, but the
company's risk management strategy is expected to help in
limiting the impact of rising grain costs and normalize the
losses. In the International segment, both hog production and
meat processing businesses are expected to improve in Poland and
Romania. Further, the company continues to see strong export
demand for fresh pork in fiscal 2013.
The company's focus on brand building investments and
innovation, restructuring initiatives, improved packaging and
production of healthier products also adds to growth. Smithfield
is also increasing its focus on consumer convenience by
introducing more ready-to-eat foods. The restructuring of the
pork segment is also expected to increase pork production and
outweigh the rising prices of raw materials going ahead.
Other Stocks to Consider
Smithfield holds a Zacks Rank #3 (Hold). Other meat producers
worth considering include
Hillshire Brand Company
Hormel Foods Corp
Pilgrim's Pride Corp
) , each of them carrying a Zacks Rank #2 (Buy).
HORMEL FOODS CP (HRL): Free Stock Analysis
HILLSHIRE BRAND (HSH): Free Stock Analysis
PILGRIMS PRIDE (PPC): Free Stock Analysis
SMITHFIELD FOOD (SFD): Free Stock Analysis
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