October 5, 2009

Shares of Smithfield Foods Inc. (SFD) declined more than 9 percent Thursday (October 1) after Chief Executive Larry Pope sold shares of the pork giant, but attempted to brace investors' fears about his move by saying he is still confident in the company's future performance.

The move comes nearly a month after Pope said the US hog industry is recovering amid steep production cuts after a glut of pork threatened to push many producers out of business. It also follows director Paul Fribourg's resignation that was based on his objection to the company's plans to sell US$250 million in stock to strengthen its balance sheet and perhaps retire debt.

In recent trading, shares of Smithfield Foods were down 8.1 percent to US$12.68, erasing this week's small gains thus far. The stock hit an intraday low of US$12.61. Shares have floated between US$10.79 and US$14.40 since mid-June and declined 10 percent in the last three months.

D.A. Davidson analyst Timothy Ramy, who rates the company underperform, said he finds Pope's sell-off "bizarre" as it is the latest in a string of actions involving the company's executives. "I can't help but think that it sends some kind of message," said Ramy. He added that if Pope's sell-off is based on financial matters, "it would be a large contingency"

The company said Thursday in a statement that Pope sold 100,000 shares of Smithfield's stock to meet personal obligations. It also stated the "share sale is purely to fulfil personal commitments" as executives weren't paid their bonuses last year. The company added Pope doesn't intend to sell any additional shares at this time.

Prior to the recent sale, Pope owned 322,000 shares of Smithfield Foods. He also has options to buy 670,000.

In a statement, Pope reiterated his enthusiasm about the future of Smithfield Foods. "Smithfield's packaged-meats business is performing at record levels and profitability is already benefiting from the restructuring plan. In addition, hog production results will improve as herd reductions accelerate and supply is reduced," he said. He added that management continues to position the overall business for much stronger earnings.

Smithfield, the largest US pork-products producer, has posted losses in four of the past five quarters because of high feed costs and lower demand. One reason for the drop in demand is the sector's association with the AH1N1 virus.

The company in August also completed a US$225 million bond issue that it used to help retire its European revolving credit facility.

Other food companies also traded lower Thursday as the food and beverage sector fell amid broader market weakness. Tyson Foods Inc. fell 2 percent to US$12.38 and ConAgra Foods Inc. (CAG) dropped 2 percent to US$21.24.