With a ticker symbol of "PORK," you need not spend much time wondering what sort of products PremiumStandard Farms (Nasdaq: PORK ) sells. If you said "chicken," go sit in a corner until we're done here.
This company is the second-largest producer of hogs in the country and the sixth-largest processor -- the primary difference being that the former turns piglets into porkers and the latter turns porkers into pork chops.
Any way you slice it, though, there was some squealing this quarter. Sales dropped 3% as lower prices for live hogs and processed pork more than offset the company's increases in hog production and processing volumes. Although overseas sales stayed fairly strong, North American demand trailed off a bit.
Moving on down, operating margins worsened by more than a full percentage point, and operating income fell by 14%. But considerably lower interest expense did allow the company to post year-over-year improvement in net income. That said, the company still missed estimates by a pretty significant margin.
In terms of disclosure, Premium Standard is both good and bad. I love the fact that Premium files its 10-Q the same day as it reports, but I wonder why it doesn't include a copy of the balance sheet and cash flow statement in the press release. Maybe one of my readers can email me with an answer? Do PRNewswire and similar services charge by the word? If so, kudos to the company for saving the cash. If not, why not go ahead and include the info?
Turning to the 10-Q, I see that processing revenue fell about 5% while production revenue fell a bit less than 3%. And operating profits for the processing business dropped almost one-third, while those at the production business increased by 4%. As an FYI, production was considerably more profitable, sporting a segment operating margin of more than 16% versus a bit more than 1% for processing.
Even with a tough and disappointing quarter, Premium Standard still sports good margins relative to other meat mavens like Smithfield (NYSE: SFD ) , Hormel (NYSE: HRL ) , and Tyson (NYSE: TSN ) . Still, pork is pork, and it would take a really cheap valuation to lead me to buy this sort of stock.
For more meaty thoughts:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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