CHICAGO - Shares of IBP Inc. jumped after the world's largest fresh meat processor said third-quarter profits soared 125 percent, beating Wall Street expectations by a whopping $0.22 a share.
IBP, whose results had suffered in recent quarters because of falling export demand and low domestic meat prices, said stronger sales of higher-margin processed meats and better performance from its fresh beef and pork operations boosted quarterly earnings.
The Dakota City, Neb.-based company said late Thursday it earned $65.6 million, or $0.70 a diluted share, in its third quarter ended Sept. 26, more than double last year's $29.1 million or $0.31 a share and well above analysts' expectations for $0.48 a share, according to First Call. Quarterly sales dipped to $3.2 billion from $3.4 billon a year ago.
“IBP's fresh pork business has experienced a significant turnaround from last year,” Robert Peterson, chairman and chief executive officer, said in a statement.
“Last year's restructuring of production capacity, completion of a plant startup, and this year's increase in hog supplies have helped make the difference,” he added. “We look forward to pork's continued contribution for the balance of 1998 and into 1999.”
Wall Street applauded the strong earnings performance, pushing the shares up $2 to $22.8125.
Goldman Sachs added IBP to its recommended list on Friday, based on “an incredibly strong” third quarter earnings report, food industry analyst Nomi Ghez said.
“This is a cyclical business, but they are the market leaders and they're managing the business better than anyone else in the industry,” Ghez said.
“The company now derives 25 percent of its operating income from value-added products,” she said. “That is a very meaningful shift.”
IBP said it expects even more demand for its value-added processed meats as consumers spend more money on food prepared outside the home, expanding IBP's sales to the foodservice and deli industries. The company also expects supplies of hogs and live cattle to remain high through 1998 and into 1999.
Export volume grew in the quarter despite a sharp cutback in demand from cash-strapped Asian nations, typically prime destinations for U.S. meat exports. IBP said increases in shipments to Mexico, Central and South America, and parts of Asia helped offset the effect of financial troubles throughout the Asian region.
Meat Industry Insights News Service
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