Zhongpin (NASDAQ:HOGS)

First quarter 2013 Financial Results

• Sales revenues increased 2% to $382.4 million in the first quarter 2013 from $374.1 million in the first quarter 2012 primarily due to higher sales volume of pork products sold at lower average selling prices.
• Net income decreased 13% to $10.6 million in the first quarter 2013 from $12.2 million in the first quarter 2012 primarily due to higher operating expenses in support of higher sales, more employees to support expansion, higher promotional activities, and higher interest expense, partly offset by higher gross profit. The higher expenses were mainly due to the higher volume of business and intense competitive pressure in the pork market due to the ongoing industry consolidation.
• Basic earnings per share (based on net income attributable to Zhongpin shareholders) decreased 12% to$0.29 in the first quarter 2013 from $0.33 in the first quarter 2012. Weighted average basic shares outstanding decreased 1% to 37,209,344 shares in the first quarter 2013 from 37,498,563 shares in the first quarter 2012.
• Diluted earnings per share (based on net income attributable to Zhongpin shareholders) decreased 15% to$0.28 in the first quarter 2013 from $0.33 in the first quarter 2012. Weighted average diluted shares outstanding decreased 1% to 37,278,630 shares in the first quarter 2013 from 37,503,019 shares in the first quarter 2012.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin, said, "Our results for the first quarter of 2013 clearly illustrate the intense competitive pressure in the meat industry in China.

"While the demand for all our pork products, measured by our tonnage sold, was up 10.6% in the first quarter 2013 from last year's first quarter, the average price per ton for those products dropped 7.5%. Sequentially, the first quarter 2013 average price for all our pork products was only 1.0% higher than in the fourth quarter 2012.

"Both comparisons are substantially different from the normal seasonal pattern, when the first quarter prices often peak for the year due to the high demand for pork during the Chinese New Year. Those prices reflect strong competition to gain market share that is pressuring prices and financial performance.

"Our gross profit margin increased 0.6 percentage points to 10.1% in the first quarter from 9.5% in the first quarter 2012 primarily due to higher gross profit margins on our prepared pork products and from an increase in the spread between pork prices and hog prices, due to lower hog prices.

"Our operating expenses continued to increase to support higher sales. We added more employees to support expansion and had higher promotional activities and higher interest expense, all mainly due to the higher volume of business and expansion, plus the intense competitive pressure in the pork industry.

BEIJING and CHANGGE, China, March 15, 2013 /PRNewswire/ -- Zhongpin Inc. ("Zhongpin" or the "Company," Nasdaq: HOGS), a leading meat and food processing company in the People's Republic of China, today reported higher sales revenues and lower net income for the year ended December 31, 2012 compared with the year 2011.

Year 2012 highlights:

• Sales revenues increased 13% to $1,639.6 million in 2012 from $1,456.2 million in 2011 primarily due to higher sales volume for pork products sold at lower average selling prices.
• Net income decreased 31% to $44.1 million in 2012 from $64.2 million in 2011 primarily due to a lower gross profit margin, the cost of more employees to support expansion, higher salaries, higher promotional activities, rising labor and utility costs, and higher interest expenses. The higher expenses were mainly due to the higher volume of business and intense competitive pressure in the pork market due to the ongoing industry consolidation.
• Basic earnings per share (based on net income attributable to Zhongpin shareholders) decreased 29% to $1.18 in 2012 from $1.66 in 2011. Weighted average basic shares outstanding decreased 3% to 37,273,652 shares in 2012 from 38,505,027 shares in 2011.
• Diluted earnings per share (based on net income attributable to Zhongpin shareholders) decreased 29% to $1.18in 2012 from $1.66 in 2011. Weighted average diluted shares outstanding decreased 3% to 37,328,792 shares in 2012 from 38,539,880 shares in 2011.
• As of December 31, 2012, Zhongpin had 40,376,182 shares of common stock issued, of which 37,209,344 were outstanding and 3,166,838 were held as treasury stock.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin, said, "In 2012, our sales revenues increased 13 percent on higher tonnage at lower average prices, compared with 2011, primarily due to the intense competitive market pressure generated mainly by the continuing pork industry consolidation in China.

"Our costs continued to increase, mainly in support of our current operations and planned expansions. As a result, our gross profit margin declined to 9.4% in 2012 from 10.7% in 2011 and our net profit margin declined to 2.7% in 2012 from 4.4% in 2011.

"We are sustaining our prudent expansions in geographic markets and operations to gain market share for our long-term success in the face of the ongoing industry consolidation. We are managing our costs to maintain as much gross and net profit margin as possible and are aggressively working to further increase our asset utilization, effectiveness, and efficiency.

"In 2013, we expect that the demand for pork in China should remain strong and that Zhongpin's revenues from pork and pork products are likely to increase modestly based on higher tonnage sold at lower average prices, while live hog prices will remain at current levels, compared with 2012. We anticipate that our net profit margin in 2013 will decrease due to increased competition in the industry, the expected increase in labor cost and overheads, and the expected increase in quality assurance and control costs in response to increased importance on food safety placed by the government and consumers."

Third quarter 2012 highlights:

• Sales revenues increased 4% to $415.7 million for the three months ended September 30, 2012 from $398.1 million in the third quarter 2011 primarily due to higher sales volume for pork products sold at lower average selling prices.
• Net income decreased 40% to $11.0 million in the third quarter 2012 from $18.3 million in the third quarter 2011 primarily due to a lower gross profit margin, the cost of more employees to support expansion, higher salaries, higher promotional activities, rising labor and utility costs, and higher interest expenses. The higher expenses were mainly due to the higher volume of business and intense competitive pressure in the pork market.
• Basic earnings per common share (based on net income attributable to Zhongpin shareholders) decreased 35% to $0.30 in the third quarter 2012 from $0.46 in the third quarter 2011. Weighted average basic shares outstanding decreased 7% to 37,198,909 shares in the third quarter 2012 from 39,918,816 shares in the third quarter 2011.
• Diluted earnings per common share (based on net income attributable to Zhongpin shareholders) decreased 35% to $0.30 in the third quarter 2012 from $0.46 in the third quarter 2011. Weighted average diluted shares outstanding decreased 7% to 37,240,843 shares in the third quarter 2012 from 39,918,816 shares in the third quarter 2011.
• 40,376,182 common shares were issued as of September 30, 2012, of which 37,209,344 were outstanding and 3,166,838 were held by Zhongpin as treasury shares.
• The Company maintains its previous guidance for 2012. Zhongpin expects that sales revenues should be within a range of US$1.55 billion to $1.72 billion for 2012. Gross profit margin is expected to be within the range of 8.6% to 10.2%. Net profit margin is expected to be within the range of 3.3% to 4.2%. The resulting diluted earnings per share for the fiscal year ending December 31, 2012 is expected to be within the range of $1.36 to $1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012. Assumptions and judgments supporting the guidance are shown below.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer for Zhongpin, said, "We achieved 4 percent sales revenue growth in the third quarter on higher tonnage at lower average prices, compared with last year's third quarter, in the face of intense competitive pressure. The competitive pressure in the market remains very high due, in part, to industry consolidation in the pork industry in China. Our costs continued to increase, mainly to support our current operations and planned expansions. While pork prices were generally lower, mainly due to intense competitive market pressure, hog prices also declined, but not as rapidly as pork prices. That is the primary factor for our lower gross profit margin in the third quarter compared with last year's third quarter.

Guidance for the year 2012

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "We are maintaining our prior guidance.

"Our guidance for 2012 is based on several assumptions that include:

• Continuation of China's policies designed to stimulate domestic consumption and economic growth.
• Average hog prices in China are expected to decrease about 15% to 20% in 2012 from 2011, based on the assumed forecasted trend for the supply of live hogs and the increasing cost to raise hogs.
• A higher percentage of sales from our higher-margin chilled pork and prepared pork products in 2012 compared with 2011, while we plan to continue to increase sales volumes of processed pork products to optimize our product structure.
• Average capacity utilization for the year of about 75% for pork products.
• Increasing distribution efficiencies and reduction in the duration of delivery times through the expansion of our cold-chain logistics system, networks, and services.
• Total government subsidies for Zhongpin are expected to be $5 million in 2012.

"In addition, we have assumed that the more aggressive price competition that we saw in the latter part of 2011 and the first quarter of 2012 will continue in 2012, especially aggressive promotion efforts by our major competitors.

"We have assumed that we will increase our expenses in four areas in 2012:

• First, we will continue to build our brand more aggressively;
• second, we will increase our investments in human resources, especially in training and recruiting;
• third, we will increase research and development for new customized products with different styles and tastes to further satisfy customer needs in different regions, with the objective of capturing more market share for prepared pork products; and
• fourth, we will advance our information technology and information systems more rapidly to support our cold-chain logistics system, optimize the structure of the supply chain, and to reduce the management cost.

"Lastly, we have assumed that the historical trend of increasing costs for labor, energy, environmental protection, and quality assurance and control will continue into the future, including in 2012.

"Given those comments and assumptions, we are maintaining our prior guidance.

"For the year 2012, we expect that Zhongpin's sales revenues should be within a range of US$1.55 billion to $1.72 billion.

"Gross profit margin is expected to be within the range of 8.6% to 10.2%.

"Net profit margin is expected to be within the range of 3.3% to 4.2%.

"Diluted earnings per share for the year 2012 are expected to be within the range of $1.36 to $1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012."

Second quarter 2012 highlights:

• Total sales revenues increased 11.4% to $408.2 million for the three months ended June 30, 2012 from$366.5 million in the second quarter 2011 primarily due to higher sales volume for pork products sold at lower average selling prices.
• Net income decreased 43.0% to $11.0 million in the second quarter 2012 from $19.3 million in the second quarter 2011 primarily due to a lower gross profit margin, the cost of more employees to support expansion, higher salaries, rising labor and utility costs, and higher interest expenses and income taxes. The higher expenses were mainly due to expansion of our business and intense competitive pressure in the pork market as the industry continues to consolidate and companies are required to vie aggressively to win additional market share in a variety of ways.
• Basic earnings per common share (based on net income attributable to Zhongpin shareholders) decreased 39.6% to $0.29 in the second quarter 2012 from $0.48 in the second quarter 2011. Average basic shares outstanding decreased 7.8% to 37,189,322 shares in the second quarter 2012 from 40,355,502 shares in the second quarter 2011.
• Diluted earnings per common share (based on net income attributable to Zhongpin shareholders) decreased 39.6% to $0.29 in the second quarter 2012 from $0.48 in the second quarter 2011. Average diluted shares outstanding decreased 7.8% to 37,209,695 shares in the second quarter 2012 from 40,365,654 shares in the second quarter 2011.
• Common shares issued were 40,356,182 shares as of June 30, 2012, of which 37,189,344 were outstanding and 3,166,838 were held in Zhongpin's treasury.
• Guidance for 2012 is maintained: Zhongpin expects that sales revenues should be within a range of US$1.55 billion to $1.72 billion for 2012. Gross profit margin is expected to be within the range of 8.6% to 10.2%. Net profit margin is expected to be within the range of 3.3% to 4.2%. The resulting diluted earnings per share for the year 2012 is expected to be within the range of $1.36 to $1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012. Assumptions and judgments supporting the guidance are shown below.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer for Zhongpin, said, "We achieved good sales growth in the second quarter on higher tonnage at lower average prices, compared with last year's second quarter.

"The continuing intense competitive pressure due to the ongoing pork industry consolidation inChina, and higher costs generally in China, have reduced our gross profit margin and increased our operating costs for this quarter and this year.

"We continued to expand our operations in the second quarter, but at a slower rate, to help secure our long-term growth and achieve a much stronger market position in the years ahead. Recently, we finished the construction for additional annual production capacity of 50,000 metric tons for prepared pork products and started trial production in July. With that addition, our total annual production capacity was 954,760 metric tons for all of our products at the end of July 2012.

"Pork prices were lower than expected, mainly due to intense competitive pressure as the industry continues to consolidate. Hog prices also declined, but not as rapidly as pork prices. Those were the main factors for our lower gross profit margin in the second quarter compared with last year's quarter.

"Our product growth strategy is to develop, produce, and sell more prepared pork products -- first, because customers like them, and second, because the products can be sold at higher profit margins. So the shift you see in our product mix -- with lower tonnage, lower prices, and lower sales revenues from frozen pork and higher numbers from our prepared pork products this quarter - reflects our strategy to use more of our resources to develop and produce our prepared pork products, because those are considerably more profitable and have a very attractive future. Chinese consumers today are embracing more easy-to-complete-and-serve meals, often based on the outstanding quality, safety, and taste of Zhongpin's prepared pork products. In some markets, we even sell complete kits for those meals.

Guidance for the year 2012

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "We are maintaining our prior guidance.

"Our guidance for 2012 is based on several assumptions that include:

• Continuation of China's policies designed to stimulate domestic consumption and economic growth.
• Average hog prices in China are expected to decrease about 15% to 20% in 2012 from 2011, based on the assumed forecasted trend for the supply of live hogs and the increasing cost to raise hogs.
• A higher percentage of sales from our higher-margin chilled pork and prepared pork products in 2012 compared with 2011, while we plan to continue to increase sales volumes of processed pork products to optimize our product structure.
• Average capacity utilization for the year of about 75% for pork products.
• Increasing distribution efficiencies and reduction in the duration of delivery times through the expansion of our cold-chain logistics system, networks, and services.
• Total government subsidies for Zhongpin, which are expected to be $5 million in 2012.

"In addition, we have assumed that the more aggressive price competition that we saw in the latter part of 2011 and the first and second quarters of 2012 will continue in 2012, especially aggressive promotion efforts by our major competitors.

"We have assumed that we will increase our expenses in four areas in 2012:

• First, we will continue to build our brand and do that more aggressively in 2012 than in 2011;
• second, we will increase our investments in human resources, especially in training and recruiting;
• third, we will increase research and development for new customized products with different styles and tastes to further satisfy customer needs in different regions, with the objective of capturing more market share for prepared pork products; and
• fourth, we will advance our information technology and information systems more rapidly to support our cold-chain logistics system, optimize the structure of the supply chain, and to reduce the management cost.

"Lastly, we have assumed that the historical trend of increasing costs for labor, energy, environmental protection, and quality assurance and control will continue into the future, including in 2012.

"Given those comments and assumptions, we are maintaining our prior guidance.

"For the year 2012, we expect that Zhongpin's sales revenues should be within a range of US$1.55 billion to $1.72 billion.

"Gross profit margin is expected to be within the range of 8.6% to 10.2%.

"Net profit margin is expected to be within the range of 3.3% to 4.2%.

"Diluted earnings per share for the year 2012 are expected to be within the range of $1.36 to$1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012.

"Zhongpin believes that China's meat and food industry will continue to consolidate in 2012 at a more rapid pace than in 2011, which may result in higher market shares for the leading producers. We believe that Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2012 can be achieved."

First Quarter 2012 highlights:

• Sales revenues increased 31% to $374.1 million in the first quarter 2012 from $285.8 million in the first quarter 2011.
• Net income decreased 27.8% to $12.2 million in the first quarter 2012 from $16.9 million in the first quarter 2011.
• Basic earnings per share decreased 29.8% to $0.33 in the first quarter 2012 from $0.47 in the first quarter 2011 on average basic shares outstanding that were 4.6% higher than in the first quarter 2011.
• Diluted earnings per share decreased 29.8% to $0.33 in the first quarter 2012 from $0.47 in the first quarter 2011 on average diluted shares outstanding that were 3.5% higher than in the first quarter 2011.
• Guidance for 2012 is maintained: Zhongpin expects that sales revenues should be within a range of US$1.55 billion to $1.72 billion for 2012. Gross profit margin is expected to be within the range of 8.6% to 10.2%. Net profit margin is expected to be within the range of 3.3% to 4.2%. The resulting diluted earnings per share for the year 2012 is expected to be within the range of $1.36 to $1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012. Assumptions and judgments supporting the guidance are shown below.
• As of March 31, 2012, Zhongpin had a total annual capacity of 904,760 metric tons for pork, pork products, and vegetables and fruits.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer for Zhongpin, said, "The intense competitive pressure in the pork market to gain market share continued in the first quarter as the pork industry goes through consolidation. As a result, pork prices did not increase, as a percent, as much as hog prices increased, which narrowed the gross profit spread between the cost of hogs and the price of pork. Further, substantial promotion costs were required to be competitive in both keeping and gaining market share. As expected, we incurred higher expenses in promotion, marketing, and operations to build market share and prepare the Company for increasing success in the future.

"Although, pork prices and volumes were generally higher in the first quarter than in the first quarter of 2011, we expect the prices of both hogs and pork to decline approximately 15% to 20% in 2012, so it will continue to be difficult to report higher results in 2012 than in 2011.

"As you know, in 2012 we are slowing the rate of our capacity expansions and focusing on greater use of existing facilities, which we believe should help offset some of the pressure on our financial results.

"Given the challenging competition that is very likely to continue in the marketplace in 2012, we still expect to report somewhat higher revenues in 2012 than 2011, a somewhat lower gross profit margin, and a somewhat lower net profit margin than in 2011, and diluted earnings per share within the range of $1.36 to $1.92 per share in 2012.

"Zhongpin provides outstanding, flavorful, and increasingly convenient pork products with the highest product quality and safety, from farm to fork. Those products are the foundation of our success and our future. We offer more than 410 types of pork products and more than 25 different categories of vegetables and fresh fruits and have more than 90 new products under development as of March 31, 2012, so we believe that our existing products and those in our new product pipeline will continue to be attractive to consumers and help Zhongpin gain market share in the challenging years ahead."

Guidance for the year 2012

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "We are maintaining our prior guidance that we issued on March 13, 2012.

"Our guidance for 2012 is based on several assumptions that include:

• Continuation of China's policies designed to stimulate domestic consumption and economic growth.
• Average hog prices in China are expected to decrease about 15% to 20% in 2012 from 2011, based on the assumed forecasted trend for the supply of live hogs and the increasing cost to raise hogs.
• A higher percentage of sales from our higher-margin chilled pork and prepared pork products in 2012 compared with 2011, while we plan to continue to increase sales volumes of processed pork products to optimize our product structure.
• Average capacity utilization for the year of about 75% for pork products.
• Increasing distribution efficiencies and reduction in the duration of delivery times through the expansion of our cold-chain logistics system, networks, and services.
• Total government subsidies for Zhongpin are expected to be $5 million in 2012.

"In addition, we have assumed that the more aggressive price competition that we saw in the latter part of 2011 and the first quarter of 2012 will continue in 2012, especially aggressive promotion efforts by our major competitors.

"We have assumed that we will increase our expenses in four areas in 2012:

• First, we will continue to build our brand and do that more aggressively in 2012 than in 2011;
• second, we will increase our investments in human resources, especially in training and recruiting;
• third, we will increase research and development for new customized products with different styles and tastes to further satisfy customer needs in different regions, with the objective of capturing more market share for prepared pork products; and
• fourth, we will advance our information technology and information systems more rapidly to support our cold-chain logistics system, optimize the structure of the supply chain, and to reduce the management cost.

"Lastly, we have assumed that the historical trend of increasing costs for labor, energy, environmental protection, and quality assurance and control will continue into the future, including in 2012.

"Given those comments and assumptions, we are maintaining our prior guidance.

"For the year 2012, we expect that Zhongpin's sales revenues should be within a range of US$1.55 billion to $1.72 billion.

"Gross profit margin is expected to be within the range of 8.6% to 10.2%.

"Net profit margin is expected to be within the range of 3.3% to 4.2%.

"Diluted earnings per share for the year 2012 are expected to be within the range of $1.36 to$1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012.

"Zhongpin believes that China's meat and food industry will continue to consolidate in 2012 at a more rapid pace than in 2011, which may result in higher market shares for the leading producers. We believe that Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2012 can be achieved."

Full Year 2011 Results

• Revenues increased 54% to $1,456.2 million in 2011 from $946.7 million in 2010.
• Net income increased 10% to $64.2 million in 2011 from $58.3 million in 2010.
• Basic earnings per share decreased 0.6% to $1.66 in 2011 from $1.67 in 2010 on average basic shares outstanding that were 10.5% higher than 2010.
• Diluted earnings per share increased 0.6% to $1.66 in 2011 from $1.65 in 2010 on average diluted shares outstanding that were 9.3% higher than 2010.
• Guidance for 2012: Zhongpin expects that sales revenues should be within a range of US$1.55 billion to $1.72 billion for 2012. Gross profit margin is expected to be within the range of 8.6% to 10.2%. Net profit margin is expected to be within the range of 3.3% to 4.2%. The resulting diluted earnings per share for the year 2012 is expected to be within the range of $1.36 to $1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012. Assumptions supporting the guidance are shown below.
• Zhongpin added 201,000 metric tons of annual capacity for pork and pork products during 2011 to bring total capacity at yearend 2011 to 904,760 metric tons.
• Zhongpin will be investing about $10.5 million in a by-product processing plant in Changge, Henan province, to product sausage casings and the raw material used to make heparin sodium. Annual production capacity will be 100 million meters of casings and 300 billion units of the raw material for heparin sodium. The construction is scheduled to start in the first quarter of 2012 and operations should begin in fourth quarter of 2012.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer for Zhongpin, said, "We continued to deepen our penetration in our current markets and aggressively increase our geographic markets, sales locations, customers, and operations in 2011 to support higher sales, profits, and operating cash flow in the years ahead, so the year was good in operations.

"Our financial results in 2011 reflected new aggressive price competition in the markets and our higher expenses in operations, promotion, marketing, and sales to build our market share in 2011 and prepare the Company for increasing success in the future.

"Most of our 54% increase in sales revenues in 2011 came from our pork products prices for which rose an average of 44% for the year, on tonnage that was up 7%. With the prices of both hogs and pork expected to decline from 15% to 20% in 2012, it will be difficult to report higher results in 2012 compared with 2011.

"In 2012, we will slow the rate of our capacity expansions and focus on greater use of existing facilities, which we believe should help our financial results.

"As of today, China expects its economy to grow at a good rate in 2012, with its gross domestic product continuing to increase but perhaps at a slower rate of growth.

"Despite challenging competition that is likely to continue in the marketplace in 2012, and given the good outlook for the China's economy, we expect to report somewhat higher revenues in 2012 than 2011, a somewhat lower gross profit margin and a somewhat lower net profit margin than in 2011, and diluted earnings per share within the range of $1.36 to $1.92 per share in 2012. The lower margins are expected because we are facing tough competition in the markets and must simultaneously prepare the Company for improved operating and financial performance that we expect will create substantial additional value for shareholders in the years ahead.

Guidance:

"For the year 2012, we expect that Zhongpin's sales revenues should be within a range of US$1.55 billion to $1.72 billion.

"Gross profit margin is expected to be within the range of 8.6% to 10.2%. Net profit margin is expected to be within the range of 3.3% to 4.2%.

"Diluted earnings per share for the year 2012 are expected to be within the range of $1.36 to $1.92 per share, assuming average diluted common shares outstanding of about 37.5 million shares in 2012.

"Zhongpin believes that China's meat and food industry will continue to consolidate in 2012 at a more rapid pace than in 2011, which may result in higher market shares for the leading producers. We believe that Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2012 can be achieved."

Third Quarter 2011 Results

Second quarter 2011 highlights:

• Revenues increased 70% in the second quarter 2011 to $366.5 million from $215.1 million in the second quarter 2010.
• Gross profit margin was 10.7% in the second quarter 2011 from 11.8% in the second quarter 2010. Operating profit margin was 6.5% in both second quarters. Net profit margin was 5.3% in the second quarter 2011 from 5.7% in the second quarter 2010.
• Net income increased 56% to $19.3 million in the second quarter 2011 from $12.4 million in the second quarter 2010.
• Basic earnings per share increased 33% to $0.48 in the second quarter 2011 from $0.36 in the second quarter 2010 on average basic shares outstanding that were 16% higher.
• Diluted earnings per share increased 37% to $0.48 in the second quarter 2011 from $0.35 in the second quarter 2010 on average diluted shares outstanding that were 15% higher.
• Zhongpin revised its guidance for the year 2011.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin Inc., said, "Our operations and growth strategy continued on plan in the second quarter.

"Revenues were up 70% and net income was up 56% from the prior second quarter, even with the expense associated with our aggressive expansions in markets and facilities. Total tonnage was up 6%, with average prices up 60%, second quarter over second quarter.

"Given our good results in the first half of 2011, we have revised our guidance and have fine-tuned our assumptions supporting our guidance.

"Product quality and safety, which remain our highest priorities, are engineered into our raw material selection, production, quality assurance and control processes, integrated I.T. system, and cold-chain logistics. Consumers and customers, when they choose Zhongpin products, can be sure that they are getting the highest food quality and safety, as well as great taste.

"We are on schedule in our construction projects. Those expansions will support growth in our current markets and in our geographic market expansions in northern and eastern China, which we expect will result in higher sales and a larger market share in the national pork market.

"In 2011, we are continuing our proven strategy and actions to sustain the trend-line growth we have achieved in the past several years. Our actions include supporting the breeding of premium sire boars to produce better hogs for food, expanding our geographic markets and distribution channels, building more production capacity to serve current and new markets, aggressive marketing to increase brand awareness and encourage higher sales, further streamlining our supply chain, extending our cold-chain logistics system, continuing to leverage our integrated information technology system, continuing product and process improvements, developing new products, and continuing employee training, all to sustain our rapid healthy growth to deliver our company's good financial performance for our shareholders.

"Although we usually prefer our own greenfield expansions, to augment our internal growth, we may also consider acquiring companies that have strong regional brand recognition and that produce prepared pork products using high-quality facilities. These additional operations would likely help us to build Zhongpin into an even stronger national brand; increase our market share, revenues, and net income; and strengthen our ability to take advantage of consolidation opportunities in China's meat industry."

"We remain on track to deliver a very good year in 2011."

Guidance for the year 2011

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "We are revising our guidance for the year 2011.

"The revised guidance for 2011 is based on several assumptions and judgments that include:

• Continuation of China's policies designed to stimulate domestic consumption and economic growth.
• Average pork prices in China are expected to remain the relative high level for the rest of 2011, based on the assumption of steady economic growth and the forecast trend for the supply of live hogs and the cost to raise hogs.
• A higher percentage of sales from our higher-margin chilled pork and prepared pork products in 2011 than in 2010, while continuing to increase the sales volume of processed pork products to optimize our product structure.
• Average capacity utilization for the year of about 75% for pork products.
• Increasing distribution efficiencies and reduction in the duration of delivery times by expanding our cold-chain logistics system, networks, and service.
• Continuing to reinforce awareness, recognition, and selection of Zhongpin brand products in the major regional markets, to expand awareness of the brand across China, and to increase market share and the brand's price premium.
• And continuation of the Chinese government's support and subsidies for producers of agricultural products, such as Zhongpin. Total government subsidies for Zhongpin are expected to exceed $5 million in 2011.

"Given those comments and assumptions, here are the revised numbers.

"For the year 2011, we expect that Zhongpin's sales revenues should be within a range of US$1.33 billion to $1.37 billion.

"Gross profit margin is expected to be within the range of 11.2% to 11.8%.

"Net profit margin is expected to be within the range of 5.2% to 5.8%.

"Diluted earnings per share for the year 2011 is currently expected to be within the range of $1.80 to $2.05 per share, assuming average diluted common shares outstanding of about 38.0 million shares in 2011.

"Zhongpin believes that China's meat and food industry will continue to consolidate in 2011 at a more rapid pace than in 2010, which may result in higher market shares for our main competitors. However, we believe that Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2011 can be achieved."

First quarter 2011 highlights:

• Revenues increased 40% in the first quarter 2011 to $285.8 million from $204.3 million in the first quarter 2010.
• Net income increased 27% to $16.9 million in the first quarter 2011 from $13.3 million in the first quarter 2010.
• Basic earnings per share increased 24% to $0.47 in the first quarter 2011 from $0.38 in the first quarter 2010 on average basic shares outstanding that were 3% higher.
• Diluted earnings per share increased 24% to $0.47 in the first quarter 2011 from $0.38 in the first quarter 2010 on average diluted shares outstanding that were 3% higher.
• Gross profit margin increased to 12.6% in the first quarter 2011 from 12.2% in the first quarter 2010.
• Zhongpin reaffirmed its prior guidance for the year 2011 and revised its guidance earnings per share numbers for the higher average shares that are outstanding as a result of its successful offering of 5 million common shares that was completed on March 22, 2011.
• In mid-April 2011, Zhongpin signed a framework agreement with China Construction Bank, Henan Branch, that is expected to provide approximately RMB 10 billion in financial support and services to assist Zhongpin in its growth.

"With our good results in the first quarter, we have reaffirmed our previous guidance and have revised only our guidance earnings per share numbers to account for the higher average shares that are outstanding during 2011 as a result of the completion of our follow-on offering.

• "For the year 2011, we expect that Zhongpin's sales revenues should be within a range of US$1.18 billion to $1.23 billion.
• "Gross profit margin is expected to be within the range of 11.7% to 12.4%.
• "Net profit margin is expected to be within the range of 5.7% to 6.3%.
• "Revising only for the higher average shares expected for the year 2011, the resulting diluted earnings per share for the year 2011 is currently expected to be within the range of $1.66 to $1.91 per share, assuming average diluted common shares outstanding of about 40.5 million shares in 2011.
• "Zhongpin believes that China's meat and food industry will continue to consolidate in 2011 at a more rapid pace than in 2010, which may result in higher market shares for our main competitors. However, we believe that Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2011 can be achieved."

Year 2010 highlights:

• Revenues increased 30% to $946.7 million in 2010 from $726.0 million in 2009.
• Net income increased 28% to $58.3 million in 2010 from $45.6 million in 2009.
• Basic earnings per share increased 13% to $1.67 in 2010 from $1.48 in 2009 with average basic shares outstanding being 13% higher than 2009.
• Diluted earnings per share increased 13% to $1.65 in 2010 from $1.46 in 2009 on average diluted shares outstanding being 13% higher than 2009.
• Zhongpin's 2010 results exceeded the Company's guidance of revenues within a range of $900 million to $940 million, net income within the range of $52 million to $57 million, and diluted earnings per share within the range of $1.49 to 1.64 per share.
• Gross profit margin decreased to 11.7% in 2010 from 11.9% in 2009.
• Zhongpin added 89,000 metric tons of annual capacity for pork products, vegetables, and fruits during 2010 to bring total capacity at year end to 703,760 metric tons.
• Adjusted EPS was $1.68 vs. $1.46

2010 vs. 2009 Fourth quarter EPS was  $0.54 vs. $0.36

Mr. Xianfu Zhu, Chairman and Chief Executive Officer for Zhongpin, said, "The year 2010 was a very good year in operations and financial results, especially given some unusual sustained increases in hog prices during part of the year. Our revenues increased mainly due to our capacity expansions, higher sales to existing customers, new sales volume in new geographic markets, expanded points of sales, new customers, and emphasis on our higher margin products. These factors together with the marketing of our brand, advertising, in-store promotions, and the effort of the sales team helped to grow revenues by 30% in 2010."

Outlook for pork demand in China

Mr. Zhu continued, "Our fundamental strategy has proven its effectiveness in the past several years. The major objectives, which are designed to create additional value for our shareholders, include:

• increase our brand recognition and sales,
• expand our market presence,
• increase our production capacity,
• expand and optimize our product lines, and
• maintain our technological superiority.

"China's economy continues to grow rapidly, and pork continues to be Chinese consumers' preferred protein. We believe the outlook for China's pork processing industry remains quite positive. We plan to build a leading brand and gain increased market share and are expanding our processing plants and distribution networks to satisfy increasing demand for our high quality products."

In 2011, Zhongpin expects demand for pork in China and the results of the pork and pork products segment of its business to remain strong. While supply is expected to be ample, live hog prices are expected to increase in the first half of 2011. Zhongpin anticipates that its gross profit margin in 2011 will remain stable.

Mr. Zhu continued, "The outlook for the Chinese economy, Chinese food processing industry, and for Zhongpin continues to be encouraging, so for our guidance for the year 2011, we expect to report higher revenues, net income and earnings per share. We believe it will be another very good year for Zhongpin."

Guidance for the year 2011

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "For the year 2011, we expect that Zhongpin's sales revenues should be within a range of US$1.18 billion to $1.23 billion, with gross profit margin within the range of 11.7% to 12.4%, and net income margin within the range of 5.7% to 6.3%. The resulting diluted earnings per share for the year 2011 is currently expected to be within the range of $1.89 to $2.18 per share, assuming average diluted common shares outstanding of about 35.5 million shares in 2011.

"This guidance is based on several assumptions and strategies that include:

• Continuation of China's policies designed to stimulate domestic consumption and economic growth.
• Average pork prices in China are assumed to increase between 5 and 10% in 2011 from 2010, which would be consistent with steady economic growth and relatively modest inflation.
• A higher percentage of sales from our higher-margin chilled pork and prepared pork products in 2011 than in 2010, while continuing to increase the sales volume of processed pork products to optimize our product structure.
• Average capacity utilization for the year of about 79% for pork products.
• Increasing distribution efficiencies and reduction in the duration of delivery times by expanding our cold-chain logistics system, networks, and services.
• Continuing to expand awareness, recognition, and selection of Zhongpin brand products in the major regional markets, to reinforce awareness of the brand across China, and to increase market share and the brand's price premium.
• And continuation of the Chinese government's support and subsidies for producers of agricultural products, such as Zhongpin. Total government subsidies for Zhongpin could exceed $5 million in 2011.

"Zhongpin believes that China's food processing industry will continue to consolidate in 2011 at a more rapid pace than in 2010, which may result in higher market shares for our main competitors. However, we believe Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2011 can be achieved."

BEIJING and CHANGGE, China, Dec. 13, 2010 /PRNewswire-FirstCall/ -- Zhongpin Inc. today announced that it would build a new production, research & development, test, and training complex in its home city of Changge in Henan province of China.

The new facility will add 100,000 metric tons of capacity for prepared pork products, including Chinese-style, western-style, half-cooked, and easy-to-cook pork products. Adjacent to the production facility will be a new center for advanced research & development, test, training, and other support functions.

Mr. Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin Inc., said, "This expansion will add capacity for our higher-margin downstream products and will serve our central China market and adjacent markets. It will substantially enhance our R&D and further support our expanding market share in the growth regions of China. This new facility proves that we remain committed to doing everything possible -- using the most advanced technologies and processes -- to continue delivering new product innovations that will be desired by China's citizens, delivering food at the highest standards of product quality and safety to every customer, and delivering strong long-term returns to our shareholders."

Zhongpin plans to invest $58.5 million on the construction, excluding the land use rights that Zhongpin already owns. More than 80% of the production equipment will be internationally sourced. Zhongpin consistently selects the best and most advanced equipment, processes, and integrated information systems for its plants. The company's advanced cold-chain logistics system will support the expanding capacity. The payback period for the project is expected to be about 5.75 years.

Construction for the first phase of 50,000 metric tons for prepared pork products is scheduled to start in the first quarter 2011 and be completed by the third quarter 2011, and the second phase, also with an annual capacity of 50,000 metric tons for prepared pork products, is expected to be completed in the fourth quarter 2012. The R&D, test, and training center is also expected to open by the fourth quarter 2012.

HOGS commented on price trends

Mr. Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin Inc., said, "We noticed that China's State Council issued 16 measures to stabilize consumer prices and to ensure market supplies. Excluding direct price intervention items, the 16 measures (listed below) focus on production development, stabilization of supply, reduction of delivery costs, standardization of market order, and enhancement of market supervision."

Third Quarter 2010 and recent highlights:

• Net sales revenues increased 24 percent in the three months ended September 30, 2010 to $241.1 million from $194.9 million in the third quarter 2009.

• Net income increased 11 percent to $14.7 millionin the third quarter 2010 from $13.2 million in the third quarter 2009.

• Basic and diluted earnings per common share declined $0.02 or 5 percent to $0.42in the third quarter 2010 from$0.44in the third quarter 2009, on higher net income but with higher weighted average number of shares outstanding in the third quarter 2010.

• Since the end of the second quarter of 2010 through early November, hog prices have increased more rapidly than pork prices. We estimate that pork prices will gradually increase so that the spread between pork prices and hog prices will return to their historical relationship.

Guidance maintained

Zhongpin is maintaining its prior guidance for the year 2010.

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "For the year 2010, we continue to believe that Zhongpin's

• Sales revenues should be within a range of$900 million to $940 million

• Gross profit within the range of $106 million to $115 million

• Net income within the range of$52 million to $57 million.

• The resulting diluted earnings per share for the year 2010 is currently expected to be within the range of $1.49 to $1.64 per share."

This guidance is based on several assumptions and strategies that include:

• Continuation of China's policies designed to stimulate domestic consumption and economic growth;
• Higher average pork prices in China in 2010 than in 2009;
• A higher percentage of sales from our higher-margin chilled pork and prepared pork products in 2010 than in 2009, while increasing the sales volume of processed pork products as the priority to optimize our product structure;  
• Average capacity utilization of about 75 percent for pork products;
• Increasing distribution efficiencies from expansion of our cold-chain logistics system and service areas;
• Growing awareness of the Zhongpin brand in regional markets and emerging brand awareness across China; and
• Continuation of the Chinese government's support and subsidies for producers of agricultural products, such as Zhongpin.
  

Zhongpin believes that China's food processing industry will continue to consolidate, which may result in higher market shares for our main competitors. However, we believe Zhongpin is equipped to meet the challenge of increasing competition and that our guidance for 2010 can be achieved.

Second quarter 2010 and recent highlights:

• Net sales revenues increased 33 percent in the three months ended June 30, 2010 to $215.1 million from $161.8 million in the second quarter 2009.
  
•  Net income increased 16 percent to $12.4 million in the second quarter 2010 from $10.7 million in the second quarter 2009.
  
• Basic earnings per share were unchanged at $0.36 per share for both second quarters on 17 percent higher basic weighted average shares outstanding. Diluted earnings per share decreased 3 percent to $0.35 in the second quarter 2010 from $0.36 in the second quarter 2009 on higher diluted weighted average shares outstanding.
  
• Hog and pork prices in the second quarter 2010 decreased about 10 percent from the second quarter 2009, primarily because the supply of hogs was higher than the market demand. Hog and pork prices appear to have reached bottom in mid-June, since prices have rebounded about 15 to 20 percent higher from mid-June through early August. Zhongpin believes prices will continue to increase gradually during the remainder of 2010.
  
• Prior guidance for the year 2010 has been maintained.

For this current year, given our good performance during the first half, we believe the outlook for 2010 continues to be quite encouraging, so we are reaffirming our previous performance guidance." Guidance maintained Zhongpin is maintaining its prior guidance for the year 2010. Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "For the year 2010, we continue to believe that Zhongpin's:

• Sales revenues should be within a range of $900 million to $940 million.
• Gross profit within the range of $106 million to $115 million.
• Net income within the range of $52 million to $57 million.
• The resulting diluted earnings per share for the year 2010 are currently expected to be within the range of $1.49 to $1.64 per share."
  

Mr. Warren Wang, Zhongpin's Chief Financial Officer, said, "For the year 2010, we continue to believe that Zhongpin's sales revenues should be within a range of $900 million to $940 million, with gross profit within the range of $106 million to $115 million and net income within the range of $52 million to $57 million. The resulting diluted earnings per share for the year 2010 is currently expected to be within the range of $1.49 to $1.64 per share vs $1.46 in 2009."

Source: PR Newswire (March 11, 2010)