Earnings Preview: Smithfield Foods Inc.

AP News
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Posted: Dec 08, 2009 2:24 PM

Smithfield Foods Inc. reports results for its fiscal second quarter on Thursday before the market opens. The following is a summary of key developments and analyst opinion related to the period, which ended in October.

OVERVIEW: The nation's largest hog producer and processor, like other meat makers, has been hurting for at least a year due to weak demand and to volatile commodity prices that squeezed margins. An oversupply of meat on the market kept prices down.

Smithfield has cut its production to bolster pricing, but all signs show that it hasn't helped much.

The company, based in Smithfield, Va., posted a bigger loss in its first quarter than a year earlier, hurt by one-time charges and lower prices for fresh pork it produces.

The company has seen higher sales and profit in its packaged-meat business, and it has been restructuring to shift its focus to packaged meats products like ham and bacon, which are more profitable than fresh meat and appeal to consumers eating more at home during the recession.

BY THE NUMBERS: Analysts polled by Thomson Reuters expect the company to report a loss for the second quarter, excluding one-time items, of 38 cents a share on revenue of $2.71 billion. Last year in the same quarter, the company earned 3 cents a share on revenue of $3.15 billion.

ANALYST TAKE: Deutsche Bank-North America analyst Christina McGlone recently upgraded her rating on Smithfield to "Buy" from "Hold." She credited Smithfield's restructuring and a reduction in the number of hogs now being bred because of smaller competitors' growing financial problems. She also cited rising demand overseas for U.S. pork.

WHAT'S AHEAD: Smithfield will continue to streamline its operations to focus on packaged foods. Ingredient costs _ a key factor in the company's profit _ have fallen. But it's not clear how long that will last, given that an economic recovery could push up prices for essentials like oil.

STOCK PERFORMANCE: Shares of Smithfield didn't change much during the quarter and finished at $13.48. The shares have since rebounded and closed Monday at $16.16, toward the upper end of their 52-week range of $5.55 to $17.62.