Premium Brands down on indirect fallout of China’s swine fever outbreak

VANCOUVER — An outbreak of African swine fever that has decimated hog herds in China is being blamed for indirectly weakening third-quarter returns at specialty foods producer Premium Brands Holdings Corp.

Shares dropped by as much as 10 per cent Monday after the Vancouver-based seller of deli meats and sandwiches reported an earnings miss and said it would chop its adjusted earnings and sales guidance for 2019.

The company explained prices for specialty pork products it imports from Europe spiked because China was importing more pork.

It said it was limited in its response to the higher costs because prices for meat products in the U.S. and Canada were kept artificially lower by China’s restrictions on imports from the two countries.

Premium Brands had modelled a 20 per cent loss of China’s swine herds because of the disease but it is now believed the loss is more like 50 to 55 per cent, said CEO George Paleologou on a conference call.

“To put the size of this issue in perspective, China produces almost half of the world’s pork supply, which means that over one-quarter of the global supply of pork has been temporarily taken off the market,” he said.

“This is truly a first-time event in modern history.”

Earlier this month, the Chinese government removed its ban on Canadian pork that had been in place since June and eased tariffs on U.S. imports, changes that are already being felt in the market, Paleologou said.

“While these developments don’t resolve the immediate supply-demand imbalances, they will help global protein markets to return to some normalcy and predictability,” he said.

Premium Brands’ shares fell as low as $78.00 on the Toronto Stock Exchange, down from Friday’s close of $86.91, before recovering to close at $81.83, a loss of 5.8 per cent.

The company now expects midpoint revenue of $3.64 billion this year, down from its earlier forecast of $3.69 billion, and adjusted earnings before interest, taxation, depreciation and amortization of $308 million, down from $351 million.

It said the lower guidance reflects the pork market disruption, as well as slower rampup of certain growth initiatives, a strengthening Canadian dollar and delays in closing some acquisitions.

Premium Brands reported earnings of $26.9 million or 72 cents per share for the 13 weeks ending Sept. 28, down from $36.1 million or $1.09 per share in the comparable period a year earlier.

The drop in Premium Brands earnings came even as the company hit record revenue of $968.3 million in the quarter, up from $835.5 million last year, as it continued its expansion into the United States.

On an adjusted basis, earnings were 88 cents per share, compared with $1.04 per share last year. Analysts had expected earnings of $1.16, and revenue of $953.6 million, according to financial markets data firm Refinitiv.

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