Why Smithfield Foods Stock Sank This Week
Key Points
Smithfield's second-quarter sales and earnings came in ahead of Wall Street's expectations.
Despite beats in Q2, the company guided for weaker performance in the second half and lowered its full-year guidance.
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Smithfield Foods (NASDAQ: SFD) stock got hit with a double-digit sell-off this week in response to the company's second-quarter report. Its share price ended the week down 10.3% from the previous week's close.
Smithfield released its Q2 report on Tuesday, and sales and earnings for the period actually came in ahead of Wall Street's expectations. Unfortunately, performance will likely weaken in the second half of the year -- and the company lowered its full-year guidance.
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Smithfield stock fell despite sales and earnings beats in Q2
Smithfield reported non-GAAP (adjusted) earnings of $0.62 per share in the second quarter, surpassing the average Wall Street analyst estimate by $0.02 per share. Sales of $3.7 billion in the period also topped the average analyst target by roughly $50 million despite still being down 2.3% year over year.
The company's adjusted net income of roughly $245 million was up 13.2% compared to the prior-year period, and its overall adjusted operating profit margin expanded from 7.9% to 8.1%. On the other hand, there was some margin drag in the quarter -- with the operating profit margin for its packaged meats segment declining from 14.5% to 13.1%.
Smithfield lowered its full-year performance targets
Smithfield now expects revenue for the year to come in roughly flat on an annual basis. Previously, the company had targeted low-single-digit growth. While the company's downward sales guidance revision was disappointing, its new outlook on operating income across all operating segments was significantly worse.
Smithfield now anticipates operating income between $1.075 billion and $1.15 billion for the packaged meats segment, adjusted operating income between $180 million and $240 million for the fresh pork segment, and adjusted operating income between $75 million and $125 million for the hog production unit. In total, the company now expects an adjusted operating profit for the year between $1.225 billion and $1.375 billion -- down from its previous guidance for adjusted operating income between $1.325 billion and $1.475 billion. Smithfield's Q2 report and guidance weren't disastrous, but sales and margin headwinds suggest that the stock could remain under pressure this year.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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