Tomahawk, WI 9/09/2013 (BasicsMedia) – In the midst of selling off to a Chinese meat producer, Smithfield Foods Inc. (NYSE:SFD) reported decline of profits for 1Q14. The Chief Executive Officer characterized characterized the operating environment in fresh pork and its related international business to be highly difficult.

Earnings report for first quarter

The pork producer with operations based in the U.S. presented its earnings report for 1Q14 on Friday, in which the company reported net income at $39.5 million or diluted EPS of $0.27, compared to net income of $61.7 million or $0.40 diluted EPS in the comparable quarter in the previous year. Sales for the quarter were at $3.4 billion, which increased 10% QoQ. While the operating profits for the total pork were at $61.4 million, the fresh pork segment reported losses of $36.5 million for the quarter due to declining export in pork meat.

Declining exports

Smithfield Foods attributed this decline in pork exports to the weakening yen which dampened the demand from Japanese markets. Further, tightening of rules in China and decision by the Russian government to block the import of pork in their country also resulted in this decline of exports of the company. It is worth noting that the medicated feed additive, ractopamine which is used to produce lean muscle in hogs instead of heavy fat, is permitted in the U.S. markets. However, this is widely banned in many other countries across the world which plays a major role in determining the demand for pork exports.

Acquisition by Chinese company

Smithfield Foods recently signed up a merger agreement under which the company agreed to be taken over by the Chinese meat producer, Shuanghui International Holdings Ltd. for an aggregate value of $4.7 billion in cash. It is expected that the shareholders of the company would vote on this offer on Sep. 24, 2013, while the deal proposes that it could be finalized as late as Nov. 29, 2013. In addition to the voting by shareholders, the federal agencies are also analyzing the takeover proposal to assure that it does not threaten national security in any way.

The New York investment company, Starboard Value LP, which owns around 5.7% stake in Smithfield Foods announced that it would vote against this proposed takeover as the investor feels that the company’s board have not effectively analyzed the alternatives to ensure the highest possible price to its shareholders. Starboard is expected to vote against this proposal on September 24 in an attempt to buy some time to submit its complete rival agreement.

In another move, investor David Payne filed a lawsuit in the US District court of Alexandria proposing that the courts should take immediate action to stop the proposed takeover as the investor alleges that the shareholders had been denied crucial information related to the deal and that the purchase price proves to undervalue the pork company. All these recent news has put the stock in limelight for wrong reasons.

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