August 27, 2004

 

 

Smithfield Foods First-Quarter Net Soars, Led By Pork Unit

 

Smithfield Foods Inc. said fiscal first-quarter net income more than doubled as higher live hog prices sparked a rebound in the pork segment. This has offset lower results in its beef business.

 

The fresh-pork and meat processor Thursday reported net income of $54.9 million, or 49 cents a share, for the period ended Aug. 1, compared with $22.1 million, or 20 cents a share, a year earlier.

 

The results for the year-earlier period included income of $4.5 million, or 4 cents a share, from discontinued operations.

 

Smithfield said earlier this month that it expected to report earnings of 45 cents to 50 cents a share for its first quarter.

 

Sales rose 34% to $2.65 billion from $1.98 billion.

 

Sales for the pork segment increased 56% to $1.76 billion and hog production sales climbed 57% to $527.2 million. At the same time, beef segment sales fell 1.8% to $594.7 million.

Smithfield said improved results in the hog production segment reflected a 29% increase in live hog prices.

 

The company's pork segment benefited from strong earnings from Farmland Foods, which Smithfield acquired in October 2003, and robust export demand. Although the fiscal first quarter is usually the weakest of the year for pork, that wasn't the case this year. This is because consumer demand had remained strong during the summer for all proteins, including pork.

 

Smithfield said hog-production earnings were reduced by $47 million because of the company's position on commodity futures contracts for live hogs. The company said it locked in profit in the hog production group early in the calendar year, and didn't fully benefit from the unexpected increase in live hog market prices during the quarter.

 

Results for the beef segment were sharply lower as export markets remained closed to U.S. beef following the discovery in December 2003 of a case of bovine spongiform encephalopathy, or BSE, in the state of Washington. In addition, lower cattle supplies kept live cattle prices high, thereby pressuring margins, Smithfield said.

 

The beef segment results include operating losses related to Showcase Foods Inc. Smithfield has said it intends to cease operations at the Philadelphia-based case-ready meat facility, and the company expects to record charges of $6 million to $8 million to cover costs for closing the facility in the fiscal second quarter.

 

"This was a strong quarter, as both pork and hog production improved at the same time; this is usually not the case, certainly not in the summer months," Chairman and Chief Executive Joseph W. Luter III said in a statement.

 

Results for the beef segment were disappointing, but the company expects results to improve once the export markets reopen, he said.