(Recasts with share drop, company comment, other details)
By Bob Burgdorfer
CHICAGO, June 5 Smithfield Foods Inc. SFD.N
posted a sharply lower profit on Thursday as losses in the hog
unit, due in part to high feed prices, outweighed better
results in its meat operations, and its shares fell more than 5
Smithfield is the nation's largest hog producer and like
other livestock and meat producers it has been hurt by much
higher feed costs. The price of corn, an important feed, has
surpassed a record $6 per bushel amid demand by livestock
producers, grain exporters, and makers of the biofuel ethanol.
To cope, Smithfield is reducing hog production and has
focused on producing more profitable packaged foods.
Earnings for the fourth quarter ended April 27 were $2.4
million, or 2 cents per share, compared with year-earlier
results of $37.1 million, or 33 cents per share.
Results included after-tax income from discontinued
operations of $0.6 million, or 1 cent per share.
Wall Street analysts on average expected 5 cents per share,
according to Reuters Estimates.
In addition to the after-tax income, the quarter included
other one-time gains and charges, which the company said were
largely neutral to overall results.
Wachovia food analyst Jonathan Feeney called the results
"disappointing", but remained positive for longer term results
due in part to better results on meat sales.
"In these numbers, (hog) production was much worse and
(meat) processing was a little better," Feeney said in a
research note. "Now hog supply reductions are more needed than
Revenue for the period was $2.87 billion, compared with
$2.39 billion a year ago. This year's results reflect revenue
from Premium Standard Farms, a smaller rival Smithfield bought
in May 2007.
The hog unit had an operating loss of $129 million,
compared with a year earlier profit of $40.6 million, due to
lower hog prices and higher production costs.
"These were enormously difficult conditions," Chief
Executive Larry Pope said of the hog business.
A loss on hogs had been expected and the company has
responded by reducing production. It previously said it will
reduce its sow herd by 4 to 5 percent, and during Thursday's
conference call with analysts the company said a 10 percent
reduction industry wide is needed.
"The bottom line is that feed costs are going to go up and
the hog numbers are going to go down," Chairman Joseph Luter
said in the call. "The industry just cannot sustain itself in
the current environment."
Pope said the company has been raising meat prices to
offset the rise in feed prices.
Smithfield said hog prices averaged $42 per hundredweight
during the quarter versus $47 a year earlier, while it cost $54
per hundredweight to raise them versus $46 a year earlier.
The pork unit, which includes fresh and packaged meats,
earned $138.5 million, up from from $78.5 million a year
earlier, due to better sales of such items as bacon and
pre-cooked meat entrees plus strong exports of fresh pork.
"We have been successful in our strategic focus on
converting raw materials to more value-added convenience
products and driving margin expansion," Pope said.
To improve earnings, Smithfield Foods, like other meat
companies, has been working to convert more of its fresh meats
into higher-priced and more profitable packaged foods.
In addition to hogs and pork, Smithfield produces beef and
Butterball brand turkeys and is part owner of the nation's
largest cattle feeding business.
Its beef and cattle feeding operations are now classified
as discontinued operations because in March it agreed to sell
those units for $565 million to Brazilian meat company JBS S.A.
(JBSS3.SA). That deal is awaiting approval by U.S. regulators.
Smithfield shares fell to a one-month low of $28.22
Thursday morning and later were down $1.73 or 5.74 percent, at
$28.40 at the New York Stock Exchange.
(Reporting by Bob Burgdorfer, editing by Dave Zimmerman)