October 9, 2007

Weaker hog prices may reduce earnings for Smithfield 

Growing hog supplies and weaker prices has led analysts to reduce earnings projections and stock recommendations for US hog giant Smithfield Foods Inc.

Davenport Equity Research cut its quarterly earnings forecast for Smithfield to 30 cents per share from 40 cents, while Banc of America Securities decreased its per-share estimate to 41 cents from 56 cents, according to Marketwatch.

BB&T Capital Markets cut its per-share earnings estimate for the Smithfield's fiscal second quarter, ending Oct. 29, to 17 cents per share from 48 cents.

The consensus forecast is 39 cents, according to Thomson Financial.

For fiscal 2008, ending April 29, 2008, BB&T reduced its estimate to US$1.07 per share from US$2.10. The firm also downgraded Smithfield's stock to "hold" from "buy".

According to BB&T analyst Heather Jones, following a record string of profitable quarters, hog-production profitability for Smithfield has deteriorated dramatically into loss-making territory, and there is not a quick recovery.

She said pork-packing margins, which benefit from lower hog prices, have not increased enough to mitigate lower hog production profitability, as product pricing has come under pressure due to abundant supplies.

Jones noted beef packing profitability will remain challenged for the foreseeable future due to "exceptionally tight live cattle inventories, exacerbated by a recent reduction in the breeding herd".

Shares of Smithfield closed at US$30.27, down US$1.26, Monday (October 8) on the New York Stock Exchange.