August 24, 2006

 

Business losses causes Smithfield to suffer 50-percent drop in profits

 

 

US meat company Smithfield Foods Inc, on Wednesday (Aug 23) said fiscal first-quarter earnings fell 50 percent from a year ago due to expenses related to the sale of a business, higher hog production costs, and losses on its cattle feeding investment.

 

The nation's largest hog and pork producer posted a profit of US$26.6 million, for the quarter that ended Jul 30, compared with US$49 million, a year ago.

 

The results included US$14.3 million in losses related to the sale of its Quik-to-Fix foods unit. A charge of US$4.2 million, was posted related to the pending sale of its share of its Brazilian hog operations.

 

Smithfield's beef sector registered a US$8.4 million loss on its investment in a cattle feeding business. Smithfield, the fifth-largest beef processor in the US, is also part owner of Five Rivers Ranch, the largest US cattle feeding operation.

 

Improved fall demand should drive earnings for the full fiscal year, Joseph Luter, chairman and chief executive, said in a statement.

 

Despite profits being halved, revenue, registered at US$2.77 billion, was slightly lower than the US$2.93 billion a year ago.

 

Smithfield has been rapidly expanding at home and abroad through acquisitions and partnerships.

 

The company, in partnership with an investment group, recently bought the European meats business of Sara Lee.

 

Corp and in August, it announced a deal to buy the refrigerated meats business of ConAgra Foods Inc.

 

Smithfield's recent deals were made at attractive prices and should provide momentum for the future, Chief Executive Joseph Luter said, adding that although difficulties are expected in countries like Romania where Smithfield is trying to turn a plant around, he is convinced the company is on the right path.

 

Luter will be stepping down from his position on Sept 1, replaced by C. Larry Pope, the current president and chief operating officer. Luter will remain as nonexecutive chairman of the board.

 

Operating earnings from Smithfield's hog unit, which churns out more than 15 million hogs a year, slipped from US$115 million a year ago to US$90 million as higher production costs took its toll.

 

However, Smithfield sells its hogs at market prices to its own pork plants as well as to competitors. Results from the hog sales are kept separate from the company's pork sales.

 

While profits of its pork unit doubled from US$9.6 million to US$19.3 million, its beef unit fell from US$7.3 million to US$4.9 million.