WH Group Limited (288) Earnings Call Transcript & Summary

[Interpreted] Good evening, analysts and investors. Welcome to WH Group's 2026 First Quarter Results Conference. This is Guo Lijun, Executive Director and Chief Executive Officer of WH Group. Joining today's results call are members of the senior management from WH Group and our subsidiaries, Shuanghui Development, Smithfield Foods and Morliny Foods in Europe, including Mr. Wan Long, Chairman of the Board and Executive Director of WH Group; Mr. Wan Hongwei, Vice Chairman of the Board of WH Group and the Chairman of Shuanghui Development; Mr. Ma Xiangjie, Executive Director of WH Group and President of Shuanghui Development; Shane Smith, President and CEO of Smithfield; and Mark, Chief Financial Officer; Luis, CEO of Morliny Foods; Ms. Joanna Yan, Chief Financial Officer of the company; and Zhou Xiaoming, Vice President of the company. Today's earnings call will be divided into two parts. I will first present the company's first quarter financial and operating performance and then we will take your questions. Now I will walk you through the first quarter performance of 2026 of WH Group. In the first quarter, packaged meats sold total volume was 781,000 metric tons, 9.4% higher than last year. Pork sold is 1.037 million metric tons, 5.6% higher than last year. Total revenue, USD 6.994 billion, 6.7% higher than last year. EBITDA, $869 million, 10.6% higher than last year. Operating profit, $643 million, 7.5% higher than last year. Profit attributable to owners of the company, $396 million, 8.8% higher than last year. Basic earnings per share is $0.0309, also 8.8% higher than last year. So based on the performance of the first quarter, our volume revenue and the profit all achieved year-over-year growth. Now we look at the performance by segments. Packaged meats is still the core business of our group, contributing to 51.7% of total revenue and 90% of our profits. Pork business is 39.1% of our revenue and 13.4% of our profits. Other business is 9.2% of revenue and a loss or expense of $21 million. Breakdown by region. North America is 53.1% of revenue, 54% of operating profit. China business is 31% of revenue and 39% of operating profit. European business is 15.8% of revenue and 7% of the profit. During the first quarter 2026, China hog market has a total slaughter volume of 200 million heads, 2.8% higher than last year. At the end of first quarter, hog inventory in China was 420 million heads, up 1.5% year-over-year. China average hog price was RMB 12.35 per kilogram, 23% lower than last year over year. So overall, the total supply inventory increased and the price has decreased. In the U.S., the number of slaughter hogs decreased by 0.8% to 32 million heads, and the average hog price was $1.44 per kilogram, 0.6% higher year-over-year. In Europe, the average hog price was EUR 1.16 per kilogram, down 18% year-over-year. So in the first quarter in China and in Europe, the hog prices has declined year-over-year, whereas in U.S., the hog price maintained stable and with a slight increase compared to last year. Now we look at the performance by different regions. In China, the operating profit in the first quarter was $251 million, 16.7% higher than last year. Packaged meats delivered $255 million of profit, 25.6% higher than last year. Pork business has a loss of $2 million year-over-year, decline of $18 million. So packaged meats business has growth in both volume revenue and operating profit, and the operating profit has achieved double-digit growth. In North America, the operating profit was $347 million, 5.2% higher than last year. Package meats, $278 million of operating profit, 4.5% higher than last year. Pork business, $98 million of operating profit, 5.4% higher than last year. So in North America, our business have maintained growth in both revenue as well as profitability. In Europe, the operating profit declined by 15% to $45 million. Packaged meats business delivered $45 million of operating profit, increased by 40% compared to last year. Whereas for pork, there's a loss of $10 million, $32 million lower than last year. So in China and in Europe, we have growth in both packaged meats. But in the upstream business, because of the market dynamics, we have declined profitability in both China and Europe. Going forward, WH Group will continue to consolidate its global resources, leverage synergies, adhere to the business philosophy of improve mix, adjust price and control cost and the strategy of industrialization, diversification, globalization, digitalization to enhance our leading position in the global meat industry and lay a solid foundation for long-term sustainable development. In terms of priorities, we'll continue to focus on our core packaged meats business to achieve steady growth in volume and profitability. In China, we'll respond to evolving consumer markets and promote product and channel transformation to achieve a breakthrough in sales volume. In the U.S., we need to mitigate the pressure of increasing costs, optimize product mix, maintain high profitability. In Europe, we'll continue to expand our business scale through organic growth and acquisitions, reduce costs and improve efficiency to increase profitability. In the pork business, we will continue to increase the harvest capacity, absorb fixed cost and strengthen competitiveness and profitability. In hog production, we'll achieve a competitive cost structure by improving the biosecurity and KPIs. We will also accelerate the development of poultry business and enhance operational performance to further advance our meat diversification strategy and achieve synergistic development through complementary business. We will also implement management and process innovations as well as automation upgrades for all segments while accelerating the research and application of artificial intelligence, reduce costs, increase efficiency and enhance overall competitiveness. So that's all for the first quarter performance. Now we'll open the line for questions.

Morgan Stanley, Lillian Lou.

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[Interpreted] So two questions from Lillian of Morgan Stanley. First question relates to China business. So in the first quarter, as Mr. Guo has explained, china's packaged meats business has delivered good growth in terms of both volume and profitability. But some of that is probably attributable to the lower base in 2025 first quarter when the packaged meats business volume was under pressure. And in the first quarter '26, packaged meat business also benefited from sharply declined hog price after the Chinese New Year. So what's the company's outlook for second quarter and the third quarter volumes considering the relatively higher base in 2025? And also how to achieve a sustainable growth in the packaged meat business? And also, what's the company's profit per ton outlook? Can the market continue to expect higher than guidance profit per metric tons in packaged meats? Second question relates to the U.S. business. So based on the current future price, it looks like the second quarter hog production business -- hog price continue to increase year-over-year. So that could benefit the U.S. hog production. Is it fair to expect good profitability growth in the second quarter upstream business in the U.S.?

[Foreign Language]

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[Interpreted] Just to recap the response, first, from Mr. Ma, the President of Shuanghui Development. So in terms of the volume growth and profit growth, indeed, we benefit from a relatively lower base from the first quarter 2025 when the market was ongoing some destocking. But the lower base of 2025 was not the main driver of the year-over-year growth for 2026 first quarter. The growth is primarily driven by various initiatives we have taken in terms of specialized management, in terms of product innovations. And we expect in the second quarter and the third quarter, we will maintain volume growth even though the magnitude of growth may be smaller compared to the first quarter. And how do we maintain sustainable growth in packaged meats? There are five primary strategies or initiatives. First is the specialized management of our business. We specialize the sales force, the distributors, the channels and the markets so that we can more effectively manage the market. And secondly, we also optimize our product mix by addressing the K-shaped consumption trend, where we see strong demand for high-end consumers and also low end markets. In the high-end market segment, we have developed a lot of Smithfield branded products. And in the low end, we continue to roll out many high value for money products. And thirdly, we also deploy digitalization tools to help us improve efficiency. Number four, we continue to promote the double network or double POS strategy, where we significantly increased the number of point of sales or distributions. Number five is to be more precise in terms of marketing expense investments. We have significantly increased our spending in marketing, but we also want to make sure that the investment and allocation of these marketing budgets are very, very precise. In terms of profit per ton, in the past, we have maintained relatively high profit per ton at around RMB 4,000. And last year, it was very high at RMB 4,700. This year, our business strategy for both packaged meats and fresh pork is to grow our volumes while maintaining stable profit. In the first quarter, we have seen declining hog prices. That has helped us achieve relatively high profit per metric ton for packaged meats. And going forward, for the remaining part of the year, we expect the profit per ton may decline compared to last year, but it's going to be stable at a high level because there are two offsetting factors. One is our stepping up in the marketing spending and, on the other hand, is favorable hog prices. And some supplementary comments from Chairman of Shuanghui Development, Wan Hongwei, talking about main strategies we have developed this year in terms of our distribution network management, the channels and products. First, in terms of the management of the distribution channels, we are also learning the experience from other leading consumer and retail companies in China to enhance the granularity of our management of the channels. We are not just relying on the distributors to manage the market. We are -- the company will be playing a more active role in managing the market. We partner with our distributors and leverage data-driven analytical tools to better understand the market. And we work together with our distribution partners to address any issues and the challenges they face in the market. We have launched a number of pilot programs in South Henan region, which has yielded good results, and we are expanding these pilot programs in other regions such as Northern Henan province, Shandong province and Liaoning province. So these efforts have given us confidence in its continuous success in more -- in higher granularity in the management of the channels. And secondly is in light of the Chinese government's push for improving domestic demand through cultural activities and tourism, we also have set up a special channel team this year. This is another change we have made in our sales team in addition to the KA team we set up earlier. So we have also set up the mobilized resources across our business segments and various sales regions for this special channel team. And we partner with the high-speed rail stations, highway gas stations, some tourist attractions and amusement parks as well as airlines to work together to sell our products. And in this year, in the Chinese New Year as well as in the Qingming Festival, there, we have organized many marketing activities. And we believe these activities were beneficial to the sales of some of our grilled sausage products as well as the promotion of our brands. and we believe this will continue to yield good growth for us. And thirdly, in terms of products, we are also developing many regional products. This is a new strategy for us where we will, based on the different taste and the preference of consumers in different regions, to develop products that tailor to each specific consumer regions such as Northeast, Eastern China and Northern China. And we will keep you updated on the progress of this regionalized product strategy, and we are confident that this will also generate incremental volume growth for us. Shane, Mark, do you guys want to take the second question relates to the U.S. business?

Yes. So the U.S. hog...

Shane, you need to speak closer to the mic.

Can you hear me?

Yes. Yes, we can hear you now.

Okay. So the question was really about the U.S. hog production and the implications of the U.S. futures price. And I'll begin by saying in the first quarter of 2026, we continue to see positive growth in profitability with profit of $4 million versus $1 million in the prior year. And that's really, again, showing that seasonality in hog production, where typically that first and fourth quarter or a little bit weaker in the second and third quarters. We are continuing to progress to a best-in-class cost structure. So I think to the crux of the question, in 2026, I would tell you, we're looking for and the future strip would imply a similarly strong year to 2025. And that gives us the confidence, as you saw in our press release this morning, to go out and reconfirm the guidance that we had issued for hog production for 2026 of between $150 million and $200 million. I think it is important to note that the USDA is estimating about a 1.4% increase in hog production. Typically, that translates into a lower hog price than we would have seen in 2025, but we believe that's still going to be historically healthy levels. So really pleased where we are in hog production, pleased on what the future strip is showing. And while we don't speak specifically to quarter-to-quarter, over the year, again, we've reconfirmed our guidance for hog production.

[Foreign Language]

[Foreign Language]

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[Interpreted] So two questions from Luo Chen of BofA Securities. First, on China business. So in China, given we have noticed the very sharper than expected or anticipated decline in the hog prices this year and given this trend, what is the company's updated outlook for the hog price for the full year. And also in the first quarter, most of the business segments performed very well in China except the hog production, where significant loss has been incurred. So what's the company's full year outlook for the hog production in China? Second question relates to the U.S. business. We understand there is a lot of pressure on the cost side of the business. And in the first quarter, we noticed a slight improvement in profitability for packaged meats. And given the elevated cost, what is the company's outlook for packaged meats profit for the full year? And what initiatives or strategies the company can adopt such as adjust the price, improve efficiencies to mitigate the elevated cost in the U.S.?

[Foreign Language]

[Interpreted] So this is Mr. Ma from Shuanghui, the CEO of Shuanghui Development. In terms of the hog price, we think the trend we predicted earlier or forecasted earlier is largely the same except that in the second quarter, the bottom of the hog price will be lower than we had anticipated. So the average hog price will be lower than we had forecasted at the beginning of the year but not significantly, and the overall trend will not change. In terms of hog production in China. Because of our hog production team is not very specialized and they do not have sufficient expertise, so even though we have seen some improvements in the KPIs, we continue to -- we had incurred losses in the first quarter as the volume in hog production increased and also the hog price was much lower than anticipated. For the full year, even though we will see some improvements in the KPIs because of very low hog prices, there's opportunity that the loss in hog production will widen compared to last year. Shane, Mark, do you want to take the second one relates to the U.S. package meats?

Yes. U.S. package meats. And Xiaoming, this could be a little more of a longer answer, so we'll pause in the middle and allow you to translate. So first, in package meats, when we look in the first quarter over last year, volume was up about 3.5%. And so what's important to recognize when you're comparing Q1 of this year versus Q1 of last year is the timing of our Easter holiday.

[Foreign Language]

Still up by 20%. [Technical Difficulty]

Shane, I think we lost you for like 20 seconds.