- The Washington Times - Monday, June 10, 2002

Smithfield Foods Inc., the world's largest pork producer, saw its shares drop last week after the company reported profits for its fiscal fourth quarter fell 53 percent as a glut of meat weakened hog prices.
Shares of the company have fallen nearly 25 percent since the end of March, when Russia halted imports of U.S. poultry imports because of health safety concerns. The ban which was seen by many as a retaliation for President Bush imposing tariffs on steel imports was lifted a month later.
"The U.S. typically exports about 10 percent of its chicken production into Russian and all of that cheap chicken backed up on us," says Jerry Hostetter, a spokesman for Smithfield Foods. "That, in turn, depressed prices of pork and beef and there's been an excess supply of protein in the marketplace for about four months now."
The company, based in Smithfield, Va., slaughters about 18 million hogs a year and holds 20 percent of the nation's pork market. Smithfield Foods has two dozen operations spread throughout the country and almost as many in Canada, France, Mexico and Poland.
"A significant portion of our net income is from producing hogs and selling them, and this excess supply situation has significantly depressed hog prices," Mr. Hostetter adds.
Smithfield's shares closed at $19.98 Friday on the New York Stock Exchange, fairly close to the stock's yearly low of $17.85 and far off its high of $26.93 on Dec. 5.
The company reported last week that net income for the fourth-quarter ended April 28 fell 53 percent to $24.9 million (22 cents per share) from $53.5 million (49 cents) a year earlier. Meanwhile, sales rose 30 percent to $1.96 million from $1.51 million.
For the year, Smithfield's net income slipped 12 percent to $169.9 million ($1.78) from $223.5 million ($2.03) a year ago. But sales rose 25 percent to $7.36 billion from $5.9 billion.
The fall in profits caused some alarm among the investment community. Analyst John McMillin of Prudential Securities, for instance, doesn't think the stock is a very safe bet.
"Watching hog prices continue to fall, we maintain our hold rating seeing further earnings risks," he writes in a June 5 report on Smithfield Foods.
Mr. McMillin points out that hog production fell 74 percent due to lower hog prices, and that the numbers are slipping still. Hog prices averaged $38 per hundred pounds, down 17 percent from a year ago.
"The company's earnings stream is still very much tied to the price of hogs," Mr. McMillin writes. "We note that since the quarter ended hog prices have collapsed even more to a number that is averaging about $32 [per hundred pounds]). We have even seen numbers bellow $30 [per hundred pounds] recently."
But another analyst, Leonard Teitelbaum of Merrill Lynch Global Securities, rates the stock a buy, suggesting that the stock has help up relatively well considering that investors had expected Smithfield Foods' last quarter earnings to be worse than reported.
"Despite the recent stock performance," Mr. Teitelbaum writes in a June 6 report on Smithfield Foods, "we believe the valuation remains compelling."

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