- The Washington Times - Thursday, March 12, 2009

MILWAUKEE (AP) - Smithfield Foods Inc. reported a third-quarter loss Thursday that was less than analysts predicted and said its performance would improve as it focuses on the packaged meats business, where it can make more money.

Shares soared nearly 20 percent for the Smithfield, Va.-based company, the nation’s largest hog producer and pork processor, as executives offered brighter predictions for the business, which has been struggling along with others in the meat industry.

President and Chief Executive C. Larry Pope told investors on a conference call that the company was able to charge higher prices for its products like ham, pork and bacon, while costs were declining.

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“The future is going to be better than the past, and I feel comfortable with that statement,” he said.

The industry is hurting due to volatile commodity prices and weak demand, exacerbated by an oversupply of meat on the market that keeps prices down. Commodity prices have dropped, which will help boost margins. Pricing is improving as the industry cuts back on production.

Smithfield is smart to put more effort into making packaged products like bacon and ham, since that’s what cash-strapped, time-pressed consumers want now, said Christoper Shanahan, a research analyst with Frost & Sullivan.

Packaged meats are more immune to volatile ingredient costs than the whole hog business is, he said. That will insulate the company from repeating losses it took in the past year as commodity costs reached record highs over the summer.

Smithfield said it lost $103.1 million in its quarter that ended Feb. 1, or 72 cents per share, as feed costs rose and it absorbed a big restructuring charge. That compares with a profit of $54.5 million, or 41 cents per share, a year earlier.

Excluding a 38 cents-per-share restructuring charge in its pork operations and other items, the loss from continuing operations was $21.4 million, or 15 cents per share. Analysts, who typically exclude one-time charges from their estimates, expected a loss of 27 cents per share, according to Thomson Reuters.

Sales rose 7 percent to $3.35 billion, helped by an extra week in this year’s quarter, but fell just short of analysts’ estimates of $3.41 billion.

Fresh pork volume was flat, while packaged meat volume fell 4 percent from last year as consumers reacted to price increases. But Shanahan said that was not significant and consumers are still looking to buy these types of products even as they cut back on spending.

Smithfield’s shares rose $1.16 to $7.11 in afternoon trading on heavy volume.

The company is restructuring as it tries to deal with the downturn in the industry. Last month it announced that it would cut 1,800 jobs and close six factories, including one in its hometown.

Smithfield anticipates the moves will save $55 million in fiscal 2010 and $125 million by fiscal 2011. It plans to get rid of 10 percent of its production, which will help raise the prices it can charge, said Shanahan.

Pope said packaged meats saw record margins during the quarter, but the restructuring charge and tough conditions in hog production _ from high grain costs to bad pricing contracts _ offset those results. He expects a recent drop-off in grain prices to help the division and said the restructuring, plant improvements and focus on packaged meats will help the company overall.

“We will not be chasing any low-margin business and this will provide us an ability to utilize our plants,” he said.

Pope warned, however, that the fourth quarter will likely include “continued substantial losses in hog production,” but was upbeat on fiscal 2010 due to the restructuring and focus on packaged meats.


AP Business Writer Michelle Chapman in New York contributed to this report.

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