December 13, 2010

Higher meat prices boost Smithfield's latest quarter profits

Smithfield Foods' business sales continue on higher meat prices, solid exports, and restructuring moves taken to cut costs during the economic recession.

For the quarter ended October 31, the world's major hog producer earned US$143.7 million, or US$0.86 a share. Excluding favourable gains from its derivative positions and litigation, Smithfield said it earned US$0.80 a share.

Analysts had estimated the meat company to earn US$0.56 a share, according to FactSet Research. The company lost US$26.4 million a year ago when meat companies slashed production in the economic downturn.

Sales rose 11.4% to US$3 billion, about US$125 million short of analyst targets. The company said it elected not to chase less profitable sales at food retailers.

In early trading Thursday, Smithfield shares rose 6% to US$18.73.

Smithfield's financial turnaround is gaining strength as pork prices have gone up with a sharp reduction in herd sizes. This has driven up lean hog prices in the futures market. Pork exports also have increased, spurred by the weak US dollar.

In the recent quarter, Smithfield said average prices for the fresh pork it sells jumped 24%, while packaged-meat prices rose 19%.

Chief Executive Larry Pope said he expects the company's progress to continue. He said available meat supplies will be kept in check, exports will be steady, and hog raising costs will remain at current levels. "We expect that there will be very little, if any, expansion in US hog production in 2011," Pope said.

Hog production was profitable for the second consecutive quarter.

The unit earned US$78.3 million. Live hog prices jumped 56% to US$56 per hundredweight, while pre-interest raising costs were US$53 per hundredweight, on par with last year's levels.