Smithfield shares down amid bearish projections

US giant hog and pork producer Smithfield Foods Inc shares fell 3 percent Thursday (April 16) due to losses on hogs and sluggish pork sales as well as foreseen earnings.

 

Analysts said high feed costs and slower pork sales, stemming from the weak global economy, will likely hurt Smithfield's results into fiscal 2010, which begins in May.

 

Stephens Inc analyst Farha Aslam also predicted the company will likely violate its debt covenants in the August to October fiscal quarter, but should be able renegotiate them at a higher cost.

 

BB&T Capital Markets expects Smithfield to meet its debt covenants, but only by a small margin.

 

Replying to negative forecasts, Smithfield on Thursday (April 16) stresses that it has "a very high level of confidence that we've got sufficient headroom to make all of the covenants."

 

High feed grain prices continue to hurt hog producers, and Smithfield warned in March that its hog production unit would probably lose in the fourth quarter and possibly in fiscal 2010, which runs through April 2010.

 

Feed grain prices have come down from the high levels in 2008, but remain high, with corn trading near US$4 per bushel.

 

University of Missouri agricultural economist Ron Plain said is still a long way from US$2 per bushel that the industry is used to.

 

The global recession also hurt meat companies as sales in the United States and overseas has slowed as consumers buy lower cost foods such as grain-based products.

 

Jim Robb, economist at the Livestock Marketing Information Centre, said the pressures on hog producers are due to feed costs and the feedback from the overall economy.

 

BB&T now expects Smithfield to post a loss of 45 cents per share in the fourth quarter and US$1.20 per share in fiscal 2009, versus its previous forecasts of a 30-cent loss and US$1.12 loss.

 

Fourth quarter domestic packer margins were much weaker than third quarter, albeit improved from several weeks ago, notes BB&T analyst Heather Jones.

 

Weak domestic and export demand for pork has increased per capita availability in the United States, she said.

 

Stephens' Aslam maintained her forecast of a loss of 48 cents per share for the fourth quarter and a loss of US$1.25 for fiscal 2009, but cut her profit forecast to 87 cents per share from US$1.50 for fiscal 2010.

 

Smithfield is scheduled to report fourth quarter and fiscal 2009 results on June 16.

 

Wall Street analysts, on average, expect a fourth-quarter loss of 50 cents per share and a fiscal 2009 loss of US$1.23, according to Reuters Estimates.

 

Smithfield shares were down 33 cents, or 2.98 percent, at US$10.75 in afternoon trading on the New York Stock Exchange.