Smithfield CEO downplays impact of possible China pork tariffs

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Chinese tariffs on American pork would have a limited impact on WH Group-owned Smithfield Foods, chief executive Kenneth Sullivan said on Tuesday, seeking to reassure investors days after news of the possible duties hit the parent’s stock.

FILE PHOTO: Kenneth Sullivan, president and CEO of Smithfield, acquired by WH Group, the largest pork company in the world, attends a news conference on WH Group’s annual results in Hong Kong, China March 29, 2016. REUTERS/Bobby Yip

Shares in WH Group, owner of China’s biggest buyer of U.S. pork, have fallen nearly 12 percent since Thursday’s close, before Beijing said it may slap 25 percent tariffs on American pork. China said it would consider the move, along with other duties, to counter tough trade steps from Washington.

But China buys no more than 7 percent of Smithfield’s fresh pork output, Sullivan said in an analyst call after the company reported earnings late on Monday.

“We’ll find markets, we ship to more than 40 countries,” said Sullivan. “We may very well ship to China even with an increased tariff,” he said.

Investors have over-reacted, he said. WH Group shares fell more than 3 percent in Hong Kong on Tuesday following declines in excess of 4 percent in each of the previous two sessions.

The tariffs may even benefit the firm’s packaged meat business, which generates more than 70 percent of profits, by pressuring fresh pork prices in the U.S., Sullivan said.

Industry experts expect the tariffs could force exporters to sell at lower prices to offset the duties. China buys mainly fresh pork from abroad and processes it at home.

WH Group’s profit rose 7.5 percent to $1.09 billion, driven by U.S. and Europe operations, but profits from the China business missed estimates, falling 1.9 percent to 4.3 billion yuan ($687 million).

Analysts at Daiwa Capital Markets said in a note that the miss was partly due to lower sales of chilled processed meat.

The company has been trying to shift away from lower-margin, heat-treated products that make up the bulk of China’s packaged meat category but face stagnating growth.

But WH Group’s traditional distributors have not adapted well to selling the new products, said Ma Xiangjie, president of its China business, Henan Shuanghui Investment and Development.

The company will look for new distributors to specialize in different categories in different regions, he said.

The company is also trying to boost its sales on online platforms and to food-service clients. It has phased out some poor performing products and expects growth in packaged meat sales volumes in 2018 of at least 10 percent, according Wan Long, chairman of WH Group.

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