- The Washington Times - Monday, March 1, 2004

Shares of Smithfield Foods Inc., the world’s largest pork producer, hit a one-year high yesterdayafter the company posted largegains in its recent quarter.

Despite a fallout in its beef-processing division that cost the company $11 million, the Smithfield, Va., company’s net income in the third quarter ended Feb. 1 surged to $46.1 million (41 cents per diluted share) from $5.3 million (5 cents) a year earlier.

Diluted earnings per share include the value of convertible warrants and stock options.

Smithfield attributed most of the gain to high demand for pork and additional sales from new company purchases, mainly the $367 million acquisition in October of Farmland Foods, the pork-production business of Farmland Industries Inc.

“Clearly our beef operations were hurt by the beef-export bans,” which arose from the mad cow case in Washington state, which caused the company to lower its beef production rate, said Smithfield Foods spokesman Jerry Hostetter.

But strong live hog prices, up 19 percent in the past year, have coveredthe loss, Mr. Hostetter said.

Sales in the quarter jumped 50 percent to $2.7 billion from $1.8 billion last year.

Pen Jones, an analyst with Deutsche Bank, said more countries are substituting pork for meats like beef and chicken.

Exports of those meats have been suspended over fear of mad cow disease and avian influenza, both of which have been found in the United States in the past several months.

But continued bans on those meats could drive down U.S. pork prices “if the marketplace ends up with an overabundance of protein,” Mr. Jones said, rating the stock a “buy.”

Mr. Jones does not own any Smithfield stock and Deutsche Bank has no banking business with the company.

Mr. Hostetter said the company is concerned about continued beef or chicken bans.

“But most countries aren’t operating on an outright ban of all U.S. meat” and may resume regular trade soon, he said.

Smithfield’s stock hit a one-year high yesterday on the New York Stock Exchange at $25.92, up 6 percent from a week earlier at $24.45.

The stock has risen from a low of $17.38 over the past year.

Several analysts said the stock was riding on the company’s strong quarterly results, but noted that rumors of another acquisition may have helped as well.

Smithfield denied on Friday that it was negotiating with Swift & Co. to buy its pork and beef operations.

While the strong growth in the quarter points to a solid outlook, the company still faces mounting feed costs because of the high prices for corn and soybean and sluggish beef operations, said John McMillin, an analyst with Prudential Equity Group LLC.

“There are still too many moving parts for us to move away from our neutral weight rating,” Mr. McMillin said in a recent report.

Mr. McMillin does not own any shares of the company and Prudential Equity Group has no business with Smithfield.

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