June 9, 2006

 

Smithfield Foods posts steep drop in profits

 

 

Net income of Smithfield fell to US$1.1 million from US$85.4 million the same period last year.

 

The sharp decline reflected lower pork margins and a decline in live hog prices coupled with higher energy costs. Bird flu concerns, which impacted international demand for meat products also created an oversupply of meat products in the US.

 

Sales for the quarter fell to US$2.68 billion from US$2.90 billion compared to the same quarter last year and below market expectations of US$2.80 billion.

 

Pork sales fell to US$1.73 billion from US$1.90 billion in the prior-year quarter.

 

Beef sales were posted at US$591.4 million, down from US$607.1 million in the year-ago quarter.

 

International sales decreased to US$257.7 million from US$297.9 million in the last-year quarter.

 

Hog production sales were recorded at US$412.2 million, compared to US$514.3 million in the previous-year quarter.

 

Depressed pork margins and decline in live hog prices coupled with higher energy costs impacted margins in the company's Pork and Beef segments

 

Costs declined to US$2.47 billion from US$2.56 billion in the year-ago quarter. Gross profit for the quarter decreased to US$204.7 million from US$337.7 million in the prior-year quarter.

 

Selling, general and administrative expenses for the quarter were reported at US$152.6 million, down from US$177.5 million in the last-year quarter.

 

Total operating profit for the quarter dropped to US$46 million from US$166.4 million in the year-ago quarter.

 

In the pork segment, the company's operating results decreased over US$20 million excluding the restructuring charge.

 

The company added that average unit selling prices declined 9 percent from the prior year quarter. Live hog market prices dropped 17 percent from the prior year quarter.

 

The company also continued to suffer from weak conditions and closed export markets. The company's cattle feeding operations reported a loss of US$2.8 million, compared to a gain of US$6 million in the prior-year quarter, due to a US$13.8 million pre-tax adjustment to write-down cattle inventory to live cattle market prices.

 

The company attributed the write-down to a decline in live cattle futures market prices in the quarter.

 

The company's operations in Poland were affected by weak demand due to bird flu concerns.

 

Looking forward, the company believes its decision to enter into negotiations for the purchase of the European meats business of Sara Lee Corporation, increase in live hog futures, bigger herd sizes and seasonally strong demand for beef would help it in the long term.