September 9, 2009

Smithfield Foods Inc's fiscal first-quarter loss widened amid continuing weak demand and woes at its hog-production business, with the results missing Wall Street estimates.

 

Smithfield has been hurt by depressed hog prices and demand for some time amid the recession, with worries about the H1N1 flu adding to its challenges. The company - whose brands include John Morrell, Farmland and Butterball - has been cutting costs and refinancing debt.

 

President and Chief Executive Larry Pope said Tuesday (Sept 8) "the hog production industry will very likely continue to incur losses until an industry-wide liquidation occurs." Smithfield has cut its US hog herd 13 percent over the past six quarters.

 

The meat-packing industry may be shaken up further by Brazilian food giant JBS SA's expected deal to acquire bankrupt chicken producer Pilgrim's Pride Corp. JBS has been growing through acquisitions in recent years, including its purchase of Smithfield's beef-processing unit last year.

 

For the quarter ended August 2, Smithfield reported a loss of US$107.7 million, or 75 cents a share, compared with a prior-year loss of US$13.2 million, or 10 cents a share. Excluding items such as write-downs on hog-production assets and debt-extinguishment losses, the loss from continuing operations was 56 cents.

 

Revenue decreased 13 percent to US$2.72 million.

 

Analysts polled by Thomson Reuters most recently were looking for a loss of 55 cents on revenue of US$2.82 billion.

 

Gross margin fell to 3.6 percent from 6.2 percent amid the revenue drop.

 

At its hog-production segment, Smithfield's loss widened as revenue slid 24 percent. The fresh pork segment swung to a loss as sales tumbled 23 percent amid lower selling prices, volume and exports.

 

The company's packaged-meat business saw earnings triple to a quarterly record despite revenue falling 1.6 percent. Volume fell nine percent, but higher prices made up much of that decline while the bottom line was also aided by cost-cutting. The pork and turkey producer in July said the prior quarter marked the last to be "significantly" affected by grain positions it entered last year. Smithfield locked in some prices just as commodities peaked.

 

Shares closed at US$13.04 on Friday and didn't trade premarket. Markets were closed Monday for Labour Day. The stock has lost 41 percent of its value in the past year.