WH Group (288) H2 2018 earnings summary

Executive summary

• Despite trade disputes, African swine fever (ASF) in China and excess U.S. meat supply, business scale and revenue grew; packaged-meat sales and profits reached records.

• Hogs processed exceeded 56 million; operational efficiency and cost reductions came from organizational optimization and production-network expansion through M&A and organic growth.

Financial highlights

• 2018 turnover was $22.605 billion, up 1%; EBITDA was $2.1 billion, down 10.3%; operating profit was $1.65 billion, down 11.4%.

• Attributable profit was $1.046 billion, down 4.1%; basic EPS was $0.0713, down 4.9%.

• Hogs produced totaled 20.953 million, up 3.6%; hogs processed totaled 56 million, up 4.2%; packaged-meat external sales were 3.361 million tons, up 2.3%.

• China underlying profit was $922 million; packaged-meat profit increased $20 million, while fresh pork and hog-production profit trends declined.

Outlook and guidance

• 2019 packaged-meat costs were expected to rise with hog and other raw-material prices; price adjustments were planned after December 2018 increases covering one-third of products and 2.5%–3% of total revenue.

• Structural reform, processing efficiency and further price increases were intended to absorb costs and keep packaged-meat operating profit stable or higher.

• Management expected China hog prices to rise in H2 2019 and further in 2020; imports were expected to grow if ASF impacts persisted and trade barriers eased.

• U.S. Q2 hog-production profitability looked improved on futures, but management cautioned that futures were volatile; Q1 hog-production losses were expected to more than double Q4 2018 losses.

• Fresh pork was expected to remain profitable, with stronger margins possible if export channels reopened; management did not provide a precise margin forecast.