November 12, 2008


Smithfield Food shares at 52-week intraday low


Shares of Smithfield Foods Inc. (SFD) saw shares fall as much as 20 percent Tuesday (11 November,2008), marking a new 52-year low for the pork-products company.


Analyst Tim Ramey of D.A. Davidson & Co. said a grim outlook from Tyson Foods Inc. (TSN) has caused investors to look at what he referred to as "a lack of visibility on profit in the meat space."


Earlier on Monday (10 November, 2008), Ramey cut his 2009 and 2010 profit forecasts for Smithfield, citing concerns about the possible impact of a rising dollar and weakening world economy on exports. Ramey, who maintained a neutral rating on the stock, also lowered his price target on the shares to $10 from $18.


However, spokesperson of Smithfield gave a positive view. Jerry Hostetter, a Smithfield spokesman, said a rising dollar would do little to affect the company because U.S. hog prices are among the lowest in the world. He added that export markets, with the exception of Russia, were again picking up following the October credit-market freeze left some importers without access to funds.


Smithfield shares closed Tuesday down $1.77, or 19 percent, at $7.41. Earlier, the stock dropped to $7.30, a fresh 52-week low. Ramey said high feed costs and low sales prices contributed to the drop.



Ramey said the biggest issue is that hog farmers are unable to recover expenditure on corn for hogs. There was also the issue of meat producers unable to meet debt covenants.

In October, Moody's Investors Service Inc. decreased its debt ratings on Smithfield, saying credit metrics would remain weak for the near term owing to poor returns on its hog-production business and high leverage.


Hostetter, the Smithfield spokesman, said the price of corn, the primary feed for hogs, had d to about $3.77 a bushel from highs above $7 this summer, when natural disasters and supply strains created by ethanol demand drove up costs.


Still, Hostetter said, corn prices remain above historical trends of $2 to $2.50 a bushel. Hostetter also said Smithfield had no immediate covenant concerns. The company had about $900 million in liquidity in October, following the sale of its beef business for $565 million in cash, Hostetter said.


The company planned to sell off its cattle inventory for another $150 million. In August, Smithfield said its first-quarter made a loss as the rising cost of feeding animals offset an increasing demand for pork in international markets.

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