On March 9, 2011, world’s largest pork and hog producer, Smithfield Foods Inc. (SFD) announced its financial results for the fourth-quarter and year-end 2010.
Earnings Review
Smithfield Foods Inc. posted robust earnings of 84 cents per share for the third quarter of fiscal 2011. The result surpassed the Zacks Consensus Estimate of 66 cents by 27.3%.
GAAP earnings per share was reported at $1.21 per share, up by 4.5% from the year-ago quarter. The record increase in proforma earnings was driven by the strength of Pork segment, which benefited from favorable market conditions. Strong global demand for pork propelled exceptional fresh pork results in the quarter.
During the quarter, total sales recorded a decent year-over-year increase of 10.3% to $3.2 billion from $2.9 billion in the prior-year quarter. The improvement was primarily attributable to higher average unit selling prices in the Pork segment and higher Live Hog market prices. Total sales were in line the Zacks Consensus Estimate of $3.16 billion.
(Read our full coverage on this earnings report: Smithfield EPS Beats, Sales In Line)
Agreement of Estimate Revisions
Due the strong fourth quarter, there is an upbeat sentiment among the analyst community. Out of the 14 analysts covering the stock, 4 have revised their estimates upward for the upcoming quarter over the past 7 days. Similarly for fiscal 2011, 7 analysts raised their estimates.
Magnitude of Estimate Revisions
Therefore, there has been a significant shift in the estimates over the past week. The Zacks Consensus Estimate for the first quarter of fiscal 2011 has increased from 67 cents to 76 cents. For fiscal 2011, the estimate has gone up to $2.84 from $2.67 a share.
Our Recommendation
Smithfield Foods, Inc. together with its subsidiaries engages in the production of hog, and processing of pork and beef worldwide. The company offers fresh pork products, including unprocessed and trimmed cuts, such as loins, picnics, and ribs; and packaged meats products, such as smoked and boiled hams, bacon, sausage, hot dogs, deli and luncheon meats, pepperoni, dry meat products and ready-to-eat foods. Smithfield Foods is also involved in turkey production and hatchery operations.
Management has undertaken restructuring initiatives in an effort to save costs and boost profitability, which augur well for future operating performance. Further, the company’s vertical integration and product mix help increase margins. We maintain our long-term recommendation on Smithfield as Neutral as we anticipate it to perform in line with the broader market. However, the company has a Zacks #2 Rank, implying a short term Buy rating.
However, intense competition from other established players and cyclical nature of the company’s operations undermine the company’s future growth prospects and profitability. The main competitors are Hormel Foods (HRL) and Tyson Foods (TSN).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
HORMEL FOODS CP (HRL): Free Stock Analysis Report
SMITHFIELD FOOD (SFD): Free Stock Analysis Report
TYSON FOODS A (TSN): Free Stock Analysis Report
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