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Global meat producer, Smithfield Foods, Inc. has repurchased 7.0 million of its shares for approximately $148 million from COFCO Corporation, China's largest national agricultural trading and processing company. The repurchase was made after COFCO decided to sell its stake in Smithfield which was purchased back in 2008.

The company’s commercial relationship with the Chinese company will continue despite the buyback. The U.S. pork processor generates huge profits from exports. Smithfield’s export sales in fiscal 2012 comprised approximately 18% of Pork segment volumes.

The growing demand for fresh pork, especially from China, will further boost the company’s export sales. We believe that China will continue to be a key market for Smithfield, going forward.

Despite strong export demand for pork, increased industry supplies and weak pork demand from U.S. consumers led to the decline in Smithfield’s bottom-line in the first quarter of fiscal 2013. Earnings of 40 cents per share in the first quarter fiscal 2013 lagged both the Zacks Consensus Estimate and prior-year earnings.

Sales were almost flat year over year at $3.1 billion, primarily due to soft sales in the hog production and international business. Operating profit declined 23.2% to $131.8 million during the quarter due to rising costs and sluggish sales.

Nevertheless, we are impressed with the Smithfield’s leading market position in the industry. Smithfield is the largest hog producer and pork processor in the world.

It is also the leader in numerous packaged meat categories and includes popular brands such as Farmland, Smithfield, Eckrich, Armour and John Morrell. Further, the company invests in brand marketing and innovation in order to boost its top-line and bottom-line growth.

We currently have a long-term Neutral recommendation on Smithfield. The stock carries a Zacks #3 Rank (a short-term Hold rating), following mixed results in the first quarter. A peer company, Tyson Foods Inc. (TSN - Analyst Report) also carries a Zacks #3 Rank.

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