Processing profits

Smithfield Foods​, the world's largest pork processor, has announced fourth quarter sales of $1.9 billion (€1.6bn). The group believes that this reflects continued strong profitability in the processed meat sector despite continued weak pork prices.

Fresh pork volume increased three per cent as a result of an increase in the number of hogs processed and processed meats volume rose seven per cent.In addition, pork operating earnings rose 13 per cent as a result of substantially improved margins in processed meats. Fresh pork volume grew two per cent while processed meats volume increased eight per cent.

Smithfield Lean Generation Pork volume increased four per cent, reaching annual volume of 108 million pounds. And international earnings rose 60 per cent, with Animex of Poland enjoying its first profitable year under Smithfield ownership. Schneider of Canada also recorded very strong results.

The group saw similar volume growth in both retail and food service sales, as well as a rise of 23 per cent in volume in the newly formed Smithfield Deli Group.

Processed beef demand also remains high. The company's Polish operations recorded sharply improved results, which were offset slightly by lower earnings in Canada and Mexico.

However, Smithfield's hog production operations have experienced a decline in operating profit of $375 million from last year. Live hog prices average $22 per head below the levels of fiscal 2002 and in addition, feed costs continue to increase.

However, group chairman Joseph Luter III believes that the current dip in hog prices will not be as severe as the downturn in 1998, when hog prices dropped to a 50-year low. Looking forward to the first quarter of fiscal 2004, Luter said: "The early signs are very encouraging. Live hog prices have risen nearly 30 per cent in the past 60 days and fresh pork prices are improving."​

"Although the hog markets are frequently volatile and unpredictable, the futures markets currently are predicting strong live hog markets well into the summer and early fall. Additionally, beef operations are running at near-record profit levels.​

"The combination of a strong beef complex, more normal hog prices, improving fresh meat demand and a very solid processed meats business leads me to be optimistic as we begin fiscal 2004."​

Smithfield Foods has also begun to implement organisational changes following the merger between Smithfield Packing and Gwaltney. The combination will result in one operating entity with two retail sales divisions and one combined foodservice organisation.

The group believes that the merger of these two entities will help maximise its manufacturing capacities, as well as reduce redundant overhead and logistics costs.