March 2, 2006

  

Smithfields Foods' third quarter profits fell 27 percent

 

Profits at Smithfield foods, a major pork processor and top pork producer in the US fell 27 percent in the third quarter due to lower profits from its hog production units. Higher profits from its pork processing units helped buffer what would have otherwise been a greater decline.

 

Hog production earnings declined 55 percent from the same quarter last year, as live hog prices fell 21 percent.

 

However, its pork segment produced strong earnings as a result of lower raw material costs and improved product mix. High-margin categories such as dry sausage, pre-cooked sausage, spiral hams and pre-cooked ribs, recorded double-digit growth. Other processed meat margins were well above those of the same quarter last year.

 

This year's third quarter demonstrated the value of the company's integrated model, said Joseph Luter, chairman and chief executive officer, noting that as hog production profits fell, pork processing margins rebounded.

 

The company would continue to see volatility in hog production profits and pork processing margins, he said. However, the company's focus on operating as an integrated unit should result in more stable returns.

 

The company is currently building their domestic business around higher-value, fully-processed and cooked products that utilize the company's own raw materials.

 

Smithfield has increased pre-cooked bacon capacity by 40 percent this year, emerging as the major provider to the foodservice industry which is undergoing a transition from raw to pre-cooked bacon. Furthermore, the company's ready-to-eat deli ham plant is scheduled to come on line this summer.

 

Despite export markets that were closed most of the quarter, tight cattle supplies and high cattle costs, its beef units reported modest profits. Beef volume rose seven percent and shipments to foodservice customers rose significantly.

 

The international segment reported a slight profit in spite of high raw material costs in Poland and continuing difficult industry conditions in France. The company's joint ventures reported earnings due to favorable pricing and feed costs.

 

Despite growing pains in Central Europe in the form of high startup costs and low profits, the company remains optimistic about long-term opportunities in its operations in Romania and Poland. 

 

With annual sales of US$11 billion, Smithfield is among the leading processors of fresh pork in the United States, as well as the largest producer of hogs.