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.
“Our fiscal fourth quarter will likely be very difficult, as our hog production operations probably will not achieve profitability,” Pope said. “Meanwhile, pork exports are expected to continue to grow, which will lend support to the hog and pork markets.”
Smithfield is the largest U.S. hog producer and earlier this month said it was reducing by 4 to 5 percent its breeding herd because of high feed prices.
On Thursday, Smithfield said hog prices averaged $37 per 100 pounds for the quarter, down from $44 a year earlier, while production costs rose to $49 from $42 a year earlier.
Smithfield raises many of the hogs it turns into pork and produces about 30 percent of the nation’s pork.
Smithfield also produces beef and turkey and is part-owner of the largest U.S. cattle feeding business.
The price of corn, an important feed, has sped higher this past year as more of the grain is used to make the biofuel ethanol.
Smithfield’s joint-venture turkey operation, which includes the Butterball brand, was also hurt by higher feed costs. The turkey results are included in the company’s “other” earnings category, which reported $7.0 million in earnings, down from $15.4 million a year before.
Smithfield’s shares traded at $26.92 around midday, up 87 cents, or 3.34 percent, on the New York Stock Exchange.
Reporting by Bob Burgdorfer, editing by Gerald E. McCormick
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