Analyst downgrades Smithfield, sees tougher times ahead

Expected recovery in pork packer and producer margins has not materialised, and while Smithfield Foods has cut supplies, it's not enough, said BB&T Capital Markets equity analyst Heather Jones.

Jones estimates for fiscal year 2009's earnings have been reduced to a loss of US$1.12 a share, down from her previous estimate of a loss of US$0.88 per share.

For fiscal 2010, she expected the company to earn 93 cents per share, an estimate that has been cut from US$1.37 per share.

In her note, Jones wrote she had expected significant recovery in hog producer margins by April but both are in substantially in the red.

Meanwhile, export demand has fallen, and herd liquidation has been "inadequate''.

Furthermore, Smithfield appears to have done far more than its competition to adjust to the market's changing realities, and so likely is bearing the brunt of the costs of liquidation.