Unfavorable US pork market weighs on Smithfield owner

Dive Brief:

• Smithfield Foods’ China-based owner WH Group continued to face headwinds in its pork segment through the third quarter due to high costs and low sales in the U.S.
• The company’s pork unit reported an operating loss of $431 million during the first three quarters of 2023 as weak hog prices and consumer demand affected sales. This is a significant decline from a profit of $126 million last year.
• The “business in the U.S. continued to be difficult” as operations in China and Europe generated steady to positive results, WH Group Chairman Wan Long said in a company outlook on Tuesday. To cope with operational challenges, he said the company will “rigorously continue to improve product mix, expand [its] sales network, manage prices and control costs.”

Dive Insight:

Pig farmers have been squealing about headwinds in the U.S. market as high production costs, inflationary pressures and low prices eat into their profitability.

These economic drivers, along with challenges from regulations like California’s Prop 12, have created significant obstacles and uncertainty in the market, according to the National Pork Producers Council. While inflation has cooled some, rising interest rates and other factors could continue to put a strain on consumer spending and hamper demand for meat and pork.

WH Group, the largest pork company in the world, said it faced all these challenges during the nine months ending Sept. 30, though it was able to leverage its size and scale to mitigate the impact of unfavorable market conditions.

Overall, the Hong Kong-based meat giant posted an operating profit of $1.05 billion during the period, a 36% decline from last year, driven by its pork and packaged meats businesses in China. Results were offset by adverse conditions in the U.S. and Mexico, where subsidiary Smithfield owns and operates processing plants.

Revenue totaled $19.49 billion during the period, a nearly 5% decline from last year.

Earlier this month, Smithfield said it would close a processing plant in North Carolina in a move to increase efficiency and “better utilize existing capacity.” It also reduced its grower network in Missouri, shuttering 35 hog farms in response to tough market dynamics.

WH Group is reportedly working with banks to take Smithfield public again, with shares potentially being listed on a U.S. stock exchange as early as next year, sources familiar with the matter told the Wall Street Journal. However, Jim Monroe, Smithfield’s VP of Corporate Affairs, told the publication that it was “speculating on the possibility,” and declined to confirm whether the move was happening.

Long said in the earnings outlook that WH Group expects the unfavorable “operating landscape overhang” to continue through the rest of 2023 and, as a result, the company will be under pressure in the short term.

“We will strive for the best results amid the highly uncertain external environment,” he said.

Meatpacking enterprises Tyson Foods and JBS S.A. have also reported challenges related to market volatility and weak consumer demand throughout the year. The companies’ upcoming earnings results are scheduled to drop next month.

Correction: In a previous version of this article, Jim Monroe was misidentified. He is the VP of Corporate Affairs at Smithfield Foods.