Smithfield Foods' CEO Discusses F3Q12 Results - Earnings Call Transcript

Smithfield Foods Inc. ( SFD)

F3Q12 (Qtr End 01/29/2012)

March 8, 2012 9:00 am ET

Executives

Keira Lombardo - VP, IR

Larry Pope - President and CEO

Bo Manly - CFO

Analysts

Christina Mcglone - Deutsche Bank Securities

Diane Geissler - Credit Agricole Securities

Rohan Patkar - KeyBanc Capital Markets

Christine Mccracken - Cleveland Research Company

Farha Aslam - Stephens Inc.

Ann Gurkin - Davenport & Company

Ken Zaslow - BMO Capital Markets

Ken Goldman - JPMorgan

Tim Ramey - D. A. Davidson & Company

Robert Moskow - Credit Suisse

Presentation

Operator

Welcome to the Smithfield Foods fiscal 2012 third quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Ms. Keira Lombardo.

Keira Lombardo

Good morning. Welcome to the conference call to discuss Smithfield Foods' fiscal 2012 third quarter results. We would like to caution you that in today's call there may be forward-looking statements within the meaning of Federal Securities laws. In light of the risks and uncertainties involved, we encourage you to read the forward-looking information section of the company's 10-K for fiscal year 2011.You can access the 10-K and our press release on our website at smithfieldfoods.com.

On our call today are Larry Pope, President and Chief Executive Officer; and Bo Manly, Chief Financial Officer. This is Keira Lombardo, Vice President of Investor Relations. Larry will begin our call this morning with a review of operations followed by Bo who will review the company's financial results. Then Larry will provide our outlook for the future, after which the line will be opened for questions. Larry?

Larry Pope

Good morning. Thank you, Keira, and good morning to everyone. I'm extremely pleased to report the results of our third quarter. We reported $79 million versus $202.6 million last year for the quarter at $0.49 a share compared with $1.21.

On the surface, that looks like quite a difference between the two years. I hope you had opportunity to look through the press release and Bo will speak to it more fully. But there is some significant items in terms of days that were in the last year with an insurance settlement as well as a charge this year coming through our equity accounting with a couple of Campofrío that accounts for over $0.60 a share in just those two items and there are numerous others.

So as you look at the business more fully and understand the numbers more fully, I'm extremely pleased with this third quarter results. And as I think about it, who wouldn't be. We're seeing very strong fresh pork results. When I look at 6% return on sales and $11 ahead and $0.15 a pound on our packaged meats in spite of the fact that all the proteins are up significantly on a raw material basis, that makes me feel very, very good.

Beyond that, our hog production business which is showing up very small loss for the quarter is really relatively insignificant. Seasonally, that's always the case in the third quarter. So once again, that's with our exports is bullying off the page and it's been extremely good period for that. And I don't think that's come anywhere near to an end.

And even beyond that, our interest costs are down, which means the balance sheet is in terrific shape. Our pension costs are down. We had a great holiday ham season which is traditionally an important part of the year for the company's profitability. We were able to grow both volume and margins in those categories that are extremely important to me.

So as I look at the quarter and think about where we are from a business standpoint, I would tell the listeners this morning that I am sleeping very well. As I had said a couple of years ago, I wasn't sleeping through the night. I assure you I am sleeping very well these days. The business is performing very, very well.

On the fresh meat side, those margins were driven by profitability in just the first two months, following the end of the calendar year. Our results in fresh pork have declined somewhat; however, I don't want you to get the impression that our fresh pork business is bad. We've got a lot of opportunity to improve where we're at even at the numbers we've reported, but this is a business that seasonally changes after the first of the calendar year. I think all of those who follow the company know that, and we've seen some downward trend in our fresh pork results after the first of the year.

Importantly, on the packaged meat side, that business is solid. We've got topline growth in very significant numbers. We've been very, very successful at passing through the raw material cost increases that the industry has been seeing. We've been successful at passing those through, which is in part the result of our focus, our capacity changes and as well the fact that we have began to more focus our attention towards consumer marketing, programs that we think are helping us and our relationships with our customers and helping our brands to build equity that allows us to have a stronger position in the marketplace. So I'm extremely pleased with that.

I hope you saw that we've made the announcement previously and reinforced that in the press release with our marketing association with Richard Petty Motorsports. We've gone back into NASCAR. We've been in this direction before. We think there is a tremendous tie-in between the demographics of the people who eat our product and the people who follow NASCAR.

We are highly focused with our marketing people which have significantly strengthened our market programs with tying in and activating that relationship through to brand and product growth as well as new products. I think as we go through the 16 race program, it's a multiyear agreement, I think you'll see that we will be activating our brands through that in a significant way as we go into the year. And you take that combined with the relationship we have with Paula Deen as well as the focus we've had on television advertising both for the fall season and those on East Coast saw as well as that with our Farmland and Armour, Eckrich brands in the Midwest and upper Midwest.

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