REFILE-WRAPUP 2-Smithfield, Sanderson shares up on credit view
* Smithfield says does not expect covenant issues in FY '09
* Smithfield Q2 operating loss 21 cents/share, misses view
* Sanderson Q4 loss $1.06/share ex-items, misses view
* Smithfield shares up 20 pct, Sanderson up 10 pct (Refiles to add dropped attribution in paragraph 16; adds comments from conference call, analyst)
CHICAGO, Dec 4 (Reuters) - U.S. pork producer Smithfield Foods Inc (SFD.N) assured Wall Street it should meet credit covenants through fiscal 2009, sending up the shares of meat companies that have been battered by a bankruptcy filing from Pilgrim's Pride Corp (PGPDQ.PK).
Smithfield and chicken producer Sanderson Farms Inc (SAFM.O) both reported larger-than-expected quarterly operating losses on Thursday due to much higher feed costs. [ID:nN04371422] [ID:nN04359450]
But their shares turned higher after Smithfield Foods said it had enough cash to fund operations and was on track to meet credit obligations for the remaining six months of fiscal 2009, and should get waivers, if needed, in fiscal 2010.
"Our projections indicate that we are very comfortable with maintaining compliance in the second half of fiscal 2010," Chief Financial Officer Robert Manly told analysts on a conference call.
However, should there be unexpected costs or changes in demand, the company is now working with bankers to ensure they are granted a waiver.
"We believe an extension, if needed, can be obtained," he said.
During the conference call, analysts applauded Smithfield for its clarity on the covenants and debt issues.
"I think that is what the market was really happy to hear," said Ann Gilpin, analyst at Morningtar.
Losses in the meat business have raised worries among analysts that some companies may be unable to meet debt obligations. Pilgrim's Pride, the largest U.S. chicken producer, filed for bankruptcy protection on Monday after receiving three waivers on its credit covenants.
Livestock and meat producers have struggled this year with more expensive feed and the inability to raise meat prices fast enough to offset those costs. More recently, slowing economies worldwide have hurt meat sales.
While feed prices have declined, they remain historically high and both Smithfield and Sanderson said that may pressure future results.
Smithfield shares were up 20 percent, while Sanderson gained nearly 10 percent.
CORN HEDGES
During the call, Smithfield CEO Larry Pope said the company had hedged corn purchases this summer on average at about $6 per bushel and that may effect results for the next two quarters.
Corn is currently trading at about $3.25 per bushel.
The sale in October of Smithfield's beef operations for $580 million should help liquidity, Pope said.
Prior to Smithfield's conference call, analysts expressed disappointment in Smithfield's and Sanderson's results.
"Though we expected a tough quarter for Sanderson, we did not anticipate a loss of this degree," Ken Goldman, an analyst at J.P. Morgan, said of Sanderson in a note.
At Sanderson, a slowdown in restaurant traffic and exports have hurt business.
"Consumer demand for chicken products at the retail level has remained relatively stable, but restaurant traffic has been depressed due to current economic concerns," Sanderson Chief Executive Joe Sanderson said in a statement.
Exports also slowed and pressured dark meat prices in October and November, he said.
On an operating basis, Smithfield posted a loss of $30 million, or 21 cents per share, for the quarter. Wall Street analysts had expected a loss of 11 cents a share, according to Reuters Estimates.
Sanderson reported a loss excluding items of $21.5 million, or $1.06 per share, compared with the average analysts' forecast of a loss of 72 cents per share. Sanderson revenue rose to $460.2 million from $426.9 million.
Smithfield shares rose $1.23 to $7.36 on the New York Stock Exchange. Sanderson gained $2.38 at $28.00 on the Nasdaq. (Editing by Andre Grenon)
