Shares of Pork Giant WH Group Rise as U.S. Business Sizzles Again

By Kimberley Kao

Shares of the world's top pork producer WH Group rose after it posted higher first-half profit on the back of a turnaround in its business in the U.S.

The stock was up 8.6% in afternoon trade in Hong Kong on Wednesday, putting it on track for its best one-day performance since March 2020. Shares have gained 13% in the year to date.

WH Group, the world's largest pork-producing company by sales, said late Tuesday that net profit before biological fair-value adjustments rose 81% on the year to US$694 million in the first half, even as revenue fell 6.3%.

WH Group attributed the lower sales partly to more cautious spending by consumers in China. That was offset by a rebound in its pork business, which swung to an operating profit.

The Chinese parent of Smithfield Foods, the biggest pork producer in the U.S., said it expects the financial results of its pork business to grow significantly this year.

WH Group's results prompted forecast upgrades from Jefferies analysts Anne Ling and Lisa Liao, who lifted their net profit views for the company through 2026, highlighting lower-than-expected selling expenses in the first half. They kept a buy rating on the stock while raising their target price to HK$6.74 from HK$6.21.

"We expect the stock to re-rate on sequential improvement in operations," Ling and Liao wrote in a note. Although there was weaker consumption in China, in the long-term the analysts expect the company "to continue gaining [market] share, helped by increasing consolidation in the meat industry."

WH Group's first-half net profit beat Citi analysts' estimates, who noted improved operating profit margins in the U.S. and European Union counterbalancing the decline in China. They also retained a buy call on the stock, citing the company's strong performance overseas and plans for a spinoff and listing in the U.S.

The U.S. pork segment's operating profit turnaround in the second quarter was thanks to easing animal-feed costs, with the average price of corn down 32% in the country, DBS Group analysts wrote in a note.

Margins could stay strong in the second half of the year, as feed costs continue easing and U.S. hog prices normalize, which will likely help the U.S. pork segment maintain profitability, they wrote.

The closure of underperforming U.S. hog farms could also help fatten margins, the DBS analysts added. DBS has a buy rating on the stock and is reviewing its target price.

Write to Kimberley Kao at kimberley.kao@wsj.com

(END) Dow Jones Newswires

August 14, 2024 01:55 ET (05:55 GMT)

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