December 1, 2006

 

Smithfield Foods' earnings and sales fall on second quarter

 

 

Smithfield Foods reported net income for the second quarter of fiscal 2007 of US$44.7 million, versus net income last year of US$51.6 million.

 

Last year's second quarter included pretax charges totaling $16.3 million, in connection with the restructuring operations. Sales were US$2.8 billion, compared with US$2.9 billion a year ago.

 

Results in the pork segment, excluding the charge in last year's second quarter, were down from the same quarter a year ago due to lower meat margins.

 

Fresh pork volume was down seven percent from last year, as a result of lower processing levels, a weak fresh meat environment, as well as reduced livestock availability in the company's east coast operations.

 

However, packaged meats volumes were up nine percent, due to its acquisition of Cook's ham business and the Armour-Eckrich branded meats businesses.

 

The strong sales of these two brands helped growth rates in product categories such as ready-to-cook bacon, smoked hams, luncheon meats, smoked sausage, dry sausage, pre-cooked entrees and pre-cooked ribs.

 

Smithfield's beef sector also performed well, as higher margins for cattle boosted the company's cattle feeding investment, reversing a loss of US$2.3 million in last year's second quarter to a profit of US$4.6 million in the current quarter.

 

The company was also struggling with the circovirus issue in its east coast pork operations in the last quarter but said the issue has been contained with vaccines.

 

Hog-raising costs increased from just under US$40 per hundredweight in last year's second quarter to over US$41 per hundredweight this year on higher grain costs and under-absorbed overhead due to lower volumes.

 

Live hog prices were at US$50 per hundredweight versus US$49 last year.

 

Operating profit rose at the company's joint venture, Butterball, LLC, the combination of the former Carolina Turkeys, LLC and the recently-acquired Butterball turkey business. The improved turkey results were offset by losses in the company's bioenergy operations.

 

Smithfield's international operations returned to profitability in the quarter, especially the company's recently formed joint venture, Groupe Smithfield, and significantly improved results in Poland.

 

Groupe Smithfield, a 50/50 joint venture between Smithfield and Oaktree Capital Management, LLC, acquired the European meats business of Sara Lee Corporation. At the same time, the company contributed its French business, Jean Caby, to the joint venture.

 

Smithfield's processing operations in Poland have made a strong recovery on higher volumes and improved margins.

 

Results for the second quarter were solid in spite of generally unfavorable industry conditions, particularly in the pork segment, said C. Larry Pope, Smithfield president and chief executive officer.

 

Fresh pork and packaged meats margins remained weak even during the fall period, traditionally the best time of the year. Pope also noted continued difficulties in the beef industry.

 

Smithfield Foods has delivered a 24 percent average annual compounded rate of return to investors since 1975. With sales of US$11 billion, Smithfield is the top processor and marketer of fresh pork and processed meats in the US.