WH Group (288) Q3 2017 earnings summary

Executive summary

• 9M 2017 revenue, EBITDA, operating profit and attributable profit all grew YoY; operating profit rose across China, the U.S. and Europe.

• Management expected continued China growth in Q4 and strong U.S. and Europe volume and profit momentum, while noting market-driven volatility in hog and belly prices.

Financial highlights

• 9M revenue was $16.285B, up 3.2%; EBITDA was $1.752B, up 5.2%; operating profit was $1.379B, up 7.6%.

• Profit attributable to owners was $779M, up 5.1%; basic EPS was $0.057. Figures exclude biological asset fair value adjustments.

• Hogs produced rose 5.7% to 14.98M; hogs processed increased 9.1% to 39.2M; packaged meat external sales volume grew 1.3% to 2.374M.

Outlook and guidance

• China Q4 growth expected to continue, supported by lower raw material costs, new products and plants, restructuring, process improvements and peak-season sales.

• U.S. and Europe results expected to sustain strong volume and profit momentum; One Smithfield and the Earnings Improvement and Growth Plan targeted further cost reductions.

• China management expected Q4 packaged meat margin to at least match Q3, with potential slight improvement; Q4 hog production scale and operating profit expected to grow steadily.

• U.S. Q4 live production loss estimated at $12–$20 per head, or $50M–$70M; outlook was preliminary, with two months of the quarter remaining.

• Based on then-current futures, U.S. live production was expected not to incur losses in 2018; management cautioned that hog price forecasts are difficult.