August 26, 2008 / 1:46 PM / 11 years ago

WRAPUP 1-Smithfield, Sanderson post losses on high feed prices

* Smithfield Foods loss narrower than expected

* Sanderson Farms results worse than expected

* Sanderson Farms, Smithfield shares fall

By Bob Burgdorfer

CHICAGO, Aug 26 (Reuters) - Pork producer Smithfield Foods Inc SFD.N and chicken producer Sanderson Farms Inc (SAFM.O) reported losses on Tuesday as sharply higher feed prices continue to weigh on the U.S. meat industry.

Excluding one-time costs and charges, the loss at Smithfield Foods was narrower than expected, while at Sanderson Farms the loss was worse than Wall Street had forecast.

Shares of Sanderson fell 2.3 percent to $38.57 in early trading. Smithfield shares were down 1.2 percent at $23.25.

Smithfield Foods and Sanderson Farms, like other livestock and meat producers, have been hurt by sharply higher prices for feed, particularly corn.

Flooding in the U.S. Midwest this spring, combined with strong demand by exporters, livestock producers, and the makers of ethanol, pushed corn prices to record highs this summer.

At Smithfield, a loss on hogs overshadowed much improved earnings in pork processing, which were more than double a year earlier due to strong exports.

The Smithfield, Virginia-based company reported a loss of $12.6 million, or 9 cents per share for the fiscal first quarter ended July 27, compared with a profit of $54.6 million, or 41 cents, a year earlier.

That included $15.9 million, or 12 cents per share, in income from discontinued operations, plus $25.6 million, or 19 cents, in costs and charges.

Excluding those one-time items, the loss would have been about 2 cents per share. On that basis Wall Street analysts on average expected a loss of 4 cents per share, according to Reuters Estimates.

Revenue for the period was $2.58 billion, compared with $2.23 billion a year earlier.

“This quarter looked good enough, though we believe a recent downdraft in hog prices and calendar 2009 export outlook in the face of a strengthening dollar are the more salient issues,” Jonathan Feeney, food analyst at Wachovia Capital Markets, wrote in a research note.

HOG EXPORTS SURGE

For the fiscal third quarter ended July 27, Laurel, Mississippi-based Sanderson Farms, the No. 4 U.S. chicken producer, reported a loss of $3.65 million, or 18 cents per share. That included a charge of $1.7 million, or 9 cents a share, paid to settle litigation.

Minus the charge, Sanderson’s loss would have been $1.945 million, or 9 cents per share. On that basis, Wall Street analysts expected a loss of 5 cents, according to Reuters Estimates.

At Sanderson, in addition to higher feed costs, a slowdown in restaurant and food-service businesses have affected the company as more cash-strapped consumers eat at home.

“Casual dining and food service customers have been affected by a significant decline in restaurant traffic due to weak economic conditions and higher fuel prices,” Chief Executive Joe Sanderson said in a statement.

At Smithfield, the hog unit lost $38.8 million, compared with a year-ago profit of $93 million, as hogs, on average, sold for $55.50 per 100 lbs, but cost $61 per 100 lbs to raise.

It called the remainder of 2008 for hogs “unfavorable.”

A 124 percent increase in pork exports powered profits in the pork unit, which earned $61.7 million, compared with $26.5 million a year ago. Helped by a weak U.S. dollar, Smithfield said it had large increases in exports to China, Russia, Japan, Mexico, and the European Union.

Smithfield’s results also included income from the beef and cattle unit that is in the process of being sold to Brazilian meat company JBS (JBSS3.SA). Listed as discontinued operations, that unit earned $15.9 million, or 12 cents.

Smithfield’s said the Butterball turkey unit lost money because of high feed prices.

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