March 16, 2007

 

Circovirus, corn costs continue to hit Smithfield 
 

 

US meat conglomerate Smithfield Foods Inc continued to lose money in its hog production business but show profits in its pork business in its fiscal 2007 third quarter, pointing to the adverse effects of circovirus and higher corn costs on hog margins and an improved mix of value-added products on pork margins.

 

For its quarter and year-to-date ended January 28, Smithfield reported net earnings of 54 cents and US$1.16 per share, down from 63 cents and US$1.53 per share in its comparable fiscal 2006 periods.

 

The company said earnings were also affected by unusual matters, including a gain of 4 cents for the retroactive reinstatement of tax credits in the quarter, a charge of 4 cents in the year-before quarter for discontinued operations and a charge of 9 cents in the year-before nine months for restructuring at Smithfield Packing.

 

Smithfield attributed the sorry hog production results to continued death losses in its herds, especially in its eastern herds, because of circovirus, reporting that the number of head the company produced in the quarter was down 8 percent from the year before.

 

Though a new vaccine against the virus appears to have substantial positive benefits, it is only available in a limited supply, thus, handling the virus will depend on the vaccine's availability.

 

Smithfield also attributed bleak hog production to increasing grain costs, noting that costs of production were $42 per hundredweight in the third quarter, $4 more than the year before.

 

Chief executive officer and president Larry C. Pope said higher corn costs will have "a significant impact on our business"--an impact that will likely be felt "for some time" to come.

 

Smithfield credited pork production results to improved margins in its value-added packaged pork products and a 34 percent increase in volume, with especially good contributions from its Amour Eckrich and Cook's Hams businesses that the company acquired in the current year. 

 

The company said packaged products results were partially offset by lower fresh pork margins that "continued to be disappointing."

 

Smithfield said beef production results were a consequence of improved processing returns that were completely offset by losses in its cattle feeding division. The company said beef margins remain under historical levels due to limited cattle supplies, limited export shipments and price pressure on all proteins.

 

On Smithfield's international front, Groupe Smithfield was formed in the acquisition of the European meats businesses of Sara Lee Corporation last year in which Smithfield incorporated its Jean Caby business in France into the Sara Lee businesses across Europe.

 

The company said Groupe Smithfield recorded strong earnings in the quarter against losses at Jean Caby the year before.

 

The company said its operations in Poland, Romania and Mexico were also profitable.

 

Smithfield's other segment includes its joint venture in turkey production, Butterball LLC--the assets and brand for which were acquired by Smithfield and its turkey joint venture, then known as Carolina Turkeys, last year.