Processing Magazine

Smithfield''s profit tumbles, feed costs hurt

June 6, 2008
According to Reuters, Smithfield Foods Inc. posted sharply lower quarterly profit recently as losses in its hog unit, due in part to high feed prices, outweighed better results in its meat operations, which include Armour and Eckrich brands.

Earnings for the fourth quarter ended April 27 were $2.4 million, or 2 cents per share, compared with year-earlier results of $37.1 million, or 33 cents per share.

Results included after-tax income from discontinued operations of $0.6 million, or 1 cent per share.

Smithfield, like other livestock and meat producers, has been hurt by much higher feed costs. The price of corn, an important feed, surpassed a record $6 per bushel this year, due to demand by livestock producers, grain exporters, and makers of the biofuel ethanol.

Revenue for the period was $2.87 billion, compared with $2.39 billion a year ago. This year''s results reflect revenue from Premium Standard Farms, a smaller rival Smithfield bought in May 2007.

In addition to hogs and pork, Smithfield produces beef and Butterball brand turkeys and is part owner of the nation''s largest cattle feeding business.

Its beef and cattle feeding operations are now classified as discontinued operations because in March it agreed to sell those units for $565 million to Brazilian meat company JBS S.A. That deal is awaiting approval by U.S. regulators.

The hog unit posted an operating loss of $129 million, compared with a year earlier operating profit of $40.6 million, due to lower hog prices and higher production costs.

The company had expected a loss on hogs and it has responded by reducing its sow herd by four to five percent. Smithfield raises many of the hogs it processes into pork.

The pork unit, which includes fresh and packaged meats, earned $138.5 million, up from $78.5 million a year earlier, due to better sales of bacon and pre-cooked meat entrees plus strong exports of fresh pork.

To improve earnings, Smithfield Foods, like other meat companies, has been working to convert more of its fresh meats into higher-priced and more profitable packaged foods.