Smithfield Beats Estimates, Helped by Pork Exports

By Bob Burgdorfer

CHICAGO (Reuters) - U.S. meat company Smithfield Foods Inc (SFD.N) on Thursday reported quarterly results that trailed those of a year earlier but easily beat analysts' forecasts, on a surprisingly large gain in pork processing profits.

"We enjoyed very strong fresh pork margins that were much higher than historical levels as a result of lower hog costs and strong industry exports," Smithfield Chief Executive C. Larry Pope said in a statement.

In addition to exports, the pork results were helped by the acquisition last year of smaller rival Premium Standard Farms, the company said.

The Smithfield, Virginia-based company reported earnings for its fiscal third quarter ended Jan. 27 of $54.6 million, or 41 cents per share, compared with year-earlier results of $60.4 million, or 54 cents per share. A loss on hog production caused by lower hog prices and higher feed costs led to the downturn.

Excluding a tax loss of 3 cents per share, the results would have been 44 cents per share, which was more than double the 21-cent average of Wall Street estimates. The average was compiled by Reuters Estimates.

"It is a big beat," said Tim Ramey, food analyst with D.A. Davidson.

The company said a tax rate increase hurt earnings by an estimated 6 cents per share.

Pork processing earned $221.5 million, up from $99.6 million a year before.

Overall revenue for the period increased to $3.79 billion, from year-earlier revenue of $3.28 billion. This quarter's revenue benefited from the acquisition of Premium Standard.

"This quarter was driven by positively stunning pork profit performance," Jonathan Feeney, Wachovia food industry analyst, said in a research note.

Smithfield, like other meat companies, has been working extensively on converting more of its fresh meats into higher-priced and more profitable packaged foods.

"The company had both increased margins and increased volumes," Pope said of the packaged meats business during a conference call with Wall Street analysts. "We did have cheaper raw material cost, and that worked to our benefit."

The hog unit, the nation's largest, lost $80.7 million on an operating basis versus a $4.5 million year-earlier profit, as higher production costs and lower hog prices weighed.

DIFFICULT FOURTH QUARTER SEEN

Losses on hogs may continue through the current quarter, the company said.