Smithfield Foods Inc (SFD) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Smithfield Foods 2017 first-quarter results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Keira Lombardo. Please go ahead.

Good morning and thank you for joining us today for Smithfield Foods' conference call for the first quarter of 2017. This is Keira Lombardo, Senior Vice President of Corporate Affairs. Joining me on our call today is Glenn Nunziata, Executive Vice President and Chief Financial Officer.

Certain statements made on this call may constitute forward-looking statements within the meaning of federal securities laws. The forward-looking statements include statements concerning our outlook for the future as well as other statements of beliefs, future plans and strategies or anticipated events, all similar expressions concerning matters that are not historical facts. Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such, and should only be viewed as historical data.

Now I will turn the call over to Glenn.

Thank you, Keira, and good morning to all of you. Quickly, beginning last quarter, you would have noticed that the investor relations section of our website now requires registration to access our financial reports and other secure information and data, including the dial-in details and webcasts of earnings calls. This essentially is a requirement, since we no longer file with the SEC. Our financial statements, along with those footnotes, which are in a format that is very consistent with previous SEC filings, are available in this new password-protected section of our website.

We established that information portal so that we may provide you with additional information regarding our business and results. We very much appreciate your continued interest in this information and are pleased to be speaking with you on today's call.

Finally, as a reminder, our results are reported on a US GAAP basis so if you are looking at the WH Group financials, those are reported on an IFRS basis and there will be some differences.

Let me start by talking about the first quarter of 2017. Looking at the figures for the entire company, our total first-quarter sales were $3.7 billion, which is a very healthy increase of 11% over last year's first quarter. We generated $272 million in operating profits, representing a tremendous leap of 30% over the previous year. EBITDA was $334 million and that, too, is an impressive increase -- 24% over last year's first quarter. Finally, we generated net income of $121 million. This result appears flat against the prior year; however, when adjusted for the $70 million debt extinguishment charge, we showed net income growth over the prior period of almost 40%.

Now, let me break this down and I'll discuss divisional results. In the packaged meats division, our operating profit margin was quite strong at 10%. That came with sales of $1.8 billion, an increase of 5% over last year. Our sales volume also grew, this time by 2%, and our average unit selling price increased by 3%. In the retail segment of the packaged meats division, our focus on building distribution and velocity resulted in solid growth. To cite just a few examples, which all demonstrate our broad-based growth in this area: Smithfield bacon volume was up 1%, with distribution up 15.9 points to 72.5%; Eckrich smoked sausage volume was up 9%, with distribution up 2.8 points to 74.5%; Nathan's hot dogs volume was up 12%, with distribution up 0.6 points to 87.7%.

We have also had an absolute explosion of new and exciting products launched during the first quarter of the year. We've got five new Smithfield products; four new Pure Farms products, which is our antibiotic-free product; and two new Eckrich products, plus additions under Patrick Cudahy, Curly's and Nathan's. Each of these new additions holds tremendous promise for success in the marketplace.

The food service segment of the packaged meats division also did very well, thanks to initiatives like our new operator-focused mobile app, Smithfield Pork Solved, the launch of our Pure Farms antibiotic-free product line and dozens of limited time offers by some of our national accounts.

Last of the packaged meats division, our deli segment also performed impressively. This is due to several factors, including a new Eckrich limited time offer program, continued distribution growth and several very effective special promotions.

Turning over to fresh pork, we posted operating profit of $105 million, an increase of 5% over last year's first quarter. Sales totaled $1.3 billion, up 20%. We processed very nearly 9 million hogs, an uptick of 13%, and sales volume increased 18%. These are all truly excellent results. The results were spurred by growth in our retail, industrial and the international export trade channels.

Noteworthy within all of these numbers was the ramping growth of Smithfield Prime fresh pork, up an eye-popping 174%. Also note that Smithfield marinated fresh pork and Smithfield branded fresh pork both maintained their number-one rankings and market share.

As I discussed last quarter, fresh pork is a spread business. We took advantage of the market dynamics during 2016 -- those were low hog prices but sustained meat prices to report sizable margins. And we continued to optimize our vertical model to take advantage of this spread during the first part of 2017. Additionally, we continue to make improvements to our fresh pork operations that increase our competitiveness in the industry and these improvements also contributed to our operating profits.

Moving over to hog production, our operating loss improved 82%. We raised more than 4 million hogs, which is up 9%, while reducing costs by 3%.

Finally, our international division also turned in strong performance. Sales grew by 15% to $364 million. Sales volume increased 10% and operating profits of $30.5 million represented a 114% increase. Once again, growth in Europe is being supported by packaged meats. In Q1 we attained double-digit growth by key branded categories, including our Berlinki and Morliny hot dogs and [Caracas] cooked hymns.

Turning to our balance sheet and liquidity, I'm going to quickly run through some key data points. A quarter end we had cash and equivalents of $61 million. Total debt was approximately $2.1 billion. Our debt to EBITDA ratio was 1.7 times and our debt to capital ratio was 30%. We covered interest over 10 times. We have $1.1 billion of global liquidity.

CapEx was approximately $75 million in Q1. We expect our capital budget for normal course maintenance and payback projects to be consistent with that of the prior years. That was a run rate of approximately $350 million to $375 million. That compares to an expected full-year depreciation expense of approximately $240 million. We will also incur incremental capital here and there as we continue to execute on opportunities within our earnings improvement and growth plan.

To summarize, we are extremely pleased with our progress during the first quarter of 2017 and we believe Smithfield is ideally positioned to achieve strong results in 2017 and meaningful growth well into the future.

With that, I will turn the call over to the operator for questions.

Operator, please go ahead and open the line for questions.

(Operator Instructions).

Operator, I see that there are no questions. I think we can end the call here for today.

Thank you and ladies and gentlemen, this conference call will be available for replay starting today at 1030 a.m. and going through May 22 at midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 422838. For international participants, the number to dial is 1-320-365-3844. Again, those numbers are 1-800-475-6071 and 1-320-365-3844 with an access code of 422838.

That does conclude your conference for today. Thank you for using AT&T executive teleconference service. You may now disconnect.