Smithfield Foods benefited from a large insurance claim recovery in its third quarter, pushing its net income significantly higher as demand for pork continues to rise.
But the world's biggest hog producer also said Thursday that it will likely face higher costs over the summer, which will mean higher pork prices for consumers.
Although the results beat Wall Street estimates, the prospect that costs are heading higher may have worried investors. Smithfield shares lost 45 cents, or 2 percent, to $22.30 in late morning trading.
For the three months ended Jan. 30, Smithfield reported net income of $202.6 million, or $1.21 per share. A year ago its earnings came in at $37.3 million, or 22 cents per share.
The quarterly results included a $120.6 million gain tied to a fire insurance recovery. Excluding one-time items, adjusted earnings were 84 cents per share. This surpassed the 69 cents per share analysts polled by FactSet predicted.
Revenue rose 11 percent to $3.19 billion from $2.88 billion partly on higher pork segment average unit selling prices and increased live hog market prices. Wall Street expected lower revenue of $3.13 billion.
Better demand has helped to firm up prices that had declined because of the economic downturn and a consumer scare connecting pork with swine flu, which government and industry officials said was unfounded.
Smithfield's strong performance came during what is traditionally a weak production quarter for the industry.
Smithfield's fresh pork segment reaped the benefits of tight supplies and strong global pork demand.
"We've got supply and demand in very good balance at this point," President and CEO C. Larry Pope said during a conference call.
Among the company's strongest individual products were Armour LunchMakers, Armour Pepperoni, Curly's Barbeque, Kretschmar Deli and Smithfield Marinade.
Last month competitor Tyson Foods Inc. reported higher first-quarter earnings partly on rising pork prices. It was also buoyed by increased beef prices and improved chicken sales.
Smithfield also recorded better hog production and international sales in the third quarter, with export demand staying strong on double-digit export volume increases in countries including Japan, China and Russia.
Pope said the third quarter is typically the weakest for hog production, but that the segment's results improved because of lower hog supplies, higher live hog prices and favorable grain hedges.
Smithfield Foods Inc. anticipates that its hog production business will be profitable in fiscal 2011 and beyond even though it is dealing with rising grain prices.
The company's quarterly results come a day after it named two new board members. They are Richard T. Crowder, professor of international trade at the College of Agriculture and Life Sciences at Virginia Polytechnic Institute and State University, and Margaret G. Lewis, President of HCA's Capital Division.
Gaoning Ning, chairman of COFCO Ltd., China's largest national agricultural trading and processing company, left Smithfield's board last week due to "an increasing number of other conflicting business and public commitments," Smithfield said.