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UPDATE 3-Smithfield returns to profit, tops Street view
March 11, 2010 / 12:42 PM / in 8 years

UPDATE 3-Smithfield returns to profit, tops Street view

* Q3 EPS 22 cents vs Wall Street view 19 cents

* Rev $2.88 bln vs year-ago $3.35 bln

* Improvement seen for hog unit in FY 2011

* Shares edge up (Recasts; adds company comment, details)

By Bob Burgdorfer

CHICAGO, March 11 (Reuters) - U.S. hog and pork producer Smithfield Foods Inc SFD.N posted its first quarterly profit since 2008, as cost-cutting and herd reduction efforts paid off.

The company said on Thursday that its hog unit, a long-time drag on results, is now profitable, and that the restructuring of its pork segment should boost earnings in this fiscal year and the next one. It also said it expects pork sales to China and Russia to resume soon.

During a conference call with analysts, the company warned that poor-quality corn will pare profits on hogs this quarter and that higher-priced fresh meat may pinch operating margins in its packaged meats business.

“I believe that our fourth-quarter profitability on hog raising will not be as strong as I thought it might have been,” Chief Executive Larry Pope told analysts in reference to the corn.

Delays in planting the corn crop last year and a protracted harvest last fall due to excessive rains hurt the quality of corn, especially in the western Corn Belt.

For the third quarter ended Jan. 31, Smithfield posted net income of $37.3 million, or 22 cents a share, compared with a loss of $105.7 million, or 74 cents a share, a year before.

Analysts on average were expecting earnings of 19 cents a share, according to Thomson Reuters I/B/E/S.

Sales fell 14 percent to $2.88 billion.

Shares of Smithfield, whose quarterly profit topped Wall Street expectations, were up 1 cent at $19.00 in late morning trade on the New York Stock Exchange.

The Smithfield, Virginia-based company’s hog unit lost $55.6 million in the just-completed quarter, versus a nearly $254 million loss a year earlier.

“Looking forward to fiscal 2011, hog production should be dramatically improved year-over-year and pork results should be very solid, owing to the restructuring plan that will be complete,” Pope said in a statement.

Smithfield, like other livestock and meat producers, has struggled over the past two years, hurt initially by high costs for feed and fuel and later by the recession that slowed meat sales.

The company responded by closing and consolidating meat plants, reducing its hog breeding herd by 13 percent, and exiting noncore businesses.

“We believe this will be the last quarter of red ink for the (hog) segment. If so, hog farming will break an unprecedented string of eight straight quarters in which the business lost money,” J.P. Morgan analyst Ken Goldman said in a note.

The resumption of pork sales to China and Russia should help Smithfield’s results. Russia suspended pork imports from many plants because of traces of antibiotics in the meat. China suspended imports of U.S. pork amid concerns about the H1N1 flu. (Reporting by Bob Burgdorfer; additional reporting by Viraj Nair in Bangalore; Editing by Gerald E. McCormick and John Wallace)

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