September 9, 2010

 

Higher pork prices bolster Smithfield Foods Q1 results

 

 

Smithfield Foods Inc. said Wednesday (Sep 8) higher selling prices for pork and improvement in hog market prices helped it return to a profit in its fiscal first-quarter.

 

The meat producer reported net income of US$76.3 million, or 46 cents per share, for the three months ended August 1. The Smithfield, Virginia, company lost US$107.7 million, or 75 cents per share, in the first quarter a year ago.

 

Revenue rose 7% to US$2.9 billion from US$2.7 billion a year ago. Analysts expected higher revenue of US$3.07 billion. Results were helped by higher average unit selling prices in the pork segment and higher live hog market prices, Smithfield said.

 

For the quarter ended August 1, Smithfield said average selling prices for its pork rose 15%, while packaged-meat prices increased 17% from a year earlier. Live hog market prices rose 38% to US$58 per hundredweight due to fewer hogs for sale.

 

The meat company said the operating margin in its hog-production unit was US$17 per head. It lost US$36 per head in the year-earlier period. Its hog-production unit earned US$63.8 million compared with a year-ago loss of US$180.2 million.

 

Fresh pork revenue rose 10% to US$1.15 billion, while packaged meat revenue rose 5% to US$2.41 billion, helped by strong sales of the brands Curly's BBQ, Off the Bone Lunchmeats, Armour LunchMakers and Kretschmar Deli.

 

That segment is facing higher costs for raw materials such as corn, but the industry, including Smithfield, has offset those with higher selling prices. Average selling prices in the pork segment rose 15%.

 

The pork industry has been pressured for two years as a glut in supply kept prices low. But supply has been falling over the past two quarters.

 

In the quarter, the pork segment benefited from tighter protein supplies, with slaughter levels and freezer stocks lower compared to a year ago.

 

Smithfield CEO Larry Pope said the business environment was "very favourable in the pork segment and sharply improved in the hog production segment." He said his outlook for 2011 remains positive.

 

Pope added that all parts of the business are profitable and the company is focused on lowering hog production segment cost model and capitalising on its restructured pork group.

 

The company cuts jobs and closed factories in its pork segment to lower production and cut costs. Smithfield said that restructuring is basically complete and should save the company US$125 million annually.

 

In Smithfield's hog production segment, results benefited from fewer hogs marketed, which helped live hog prices rise 38%, while shares rose 25 cents to US$16.55 in trading earlier.