Take an unpredictable and cyclical business with narrow margins and then layer on a big dollop of debt and let the fun ensue. That's basically the recipe for Smithfield Foods (NYSE: SFD), for while this company is both the largest pork producer in the country and a well-run agribusiness in general, the combination of a low-margin business and a high-debt balance sheet makes this a never-boring play on protein.
First Quarter Results a Little Undercooked
Smithfield reported that sales rose a little less than 7% for the fiscal first quarter, with the total revenue figure coming in just a couple of percentage points below the average estimate. Sales performance was driven by the pork business (as it virtually always is), and pork revenue rose by 7.6%. Like Hormel (NYSE: HRL), Smithfield understands the virtues of a solid branded/packaged product business, and although packaged pork sales growth trailed the company average (6.4% versus 6.7%), it's still a significant contributor.
Fresh pork saw nearly 9% growth, though volume was down about 2%. Margins were at the high end of the company's historical range. On the packaged side, margins too were above normal levels and the company's sales growth was a byproduct of pricing (up 8%) offset by volume (down 1%).
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