Smithfield Foods' post 2Q loss on weak pricing

AP News
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Posted: Dec 10, 2009 4:48 PM

Smithfield Foods Inc. wants to become a household name like Tyson and Hormel as profits from its packaged meat business buffer its hog business, which has been causing losses for months.

The nation's largest hog producer and processor said Thursday it lost money in the second quarter on persistent weak hog prices, hurt by a slump in demand first as a result of the recession and then worsened by swine-flu fears last spring.

But the packaged meat side of Smithfield's business _ which includes brands like Ekrich and Patrick Cudahy _ tripled in operating profit, even as sales fell.

Smithfield has been restructuring to focus on that business, which includes products like ham and bacon. They're more profitable than fresh meat and appeal to consumers who are eating more at home during the recession.

The company has been cutting jobs and closing factories, including one in its hometown of Smithfield, Va.

Smithfield plans to boost consumer awareness of its name and cause people to reach for its products because of the brand, not just because they're among the cheapest in the store, CEO Larry Pope said.

"We're now going to focus on having some pull associated with this product," he told investors on a conference call. "It's going to take time to do that and in some cases introduce ourselves to the consumer in a much more real way."

Smithfield's packaged meat business is outperforming those of peers like Tyson Foods Inc. and Hormel Foods Inc., said KeyBanc Capital Markets analyst Akshay Jagdale. But he warned it was unclear how the business could continue at its current high profit levels _ a concern Pope indicated, too.

Packaged meat sales fell 6 percent to $1.25 billion from $1.33 billion, while operating profit surged to $131.1 million, from $40.4 million on better pricing, lower raw material costs and cost-cutting.

That business may be doing well, but Smithfield still has a task ahead of it, Jagdale said.

"They're losing money right now," he said of Smithfield. "They're not in a position yet to start building a brand."

Shares fell 53 cents, or 3.1 percent, to close at $16.33 Thursday.

In the three months ending Nov. 1, Smithfield lost $26.4 million, or 17 cents per share, compared with a profit of $1.7 million, or 1 cent per share last year.

Excluding a higher tax rate and other items, Smithfield lost 26 cents per share, a smaller loss than the 39 cents per share analysts polled by Thomson Reuters expected.

Sales fell 15 percent to $2.69 billion.

Smithfield expects to return to profitability in the second half of its fiscal year, but gave no further outlook.

The company continues to cut hog production to boost its bottom line. So far it has reduced the size of its sow herd by 13 percent, or 130,000 sows. Smithfield said the reductions will result in over 2.2 million fewer hogs annually by fiscal 2011.

Smithfield said export shipments to China, closed for the fiscal year, are expected to resume, which should help upcoming pork results.

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