Smithfield Foods 2Q profit slides 16 percent

AP News
Posted: Dec 08, 2011 6:30 PM
Smithfield Foods 2Q profit slides 16 percent

Smithfield Foods Inc. said Thursday that its fiscal second-quarter earnings slid 16 percent, as feed and other costs climbed even as it faced pressure to keep the lid on prices.

Pork producers like Smithfield are caught in a tug of war with consumers. The companies need higher prices to survive in an environment where corn prices remain permanently high thanks to the U.S. ethanol industry, which uses corn as a raw material.

But if Smithfield tries to raise its prices too quickly, it could end up cutting into its own sales as cash-strapped consumers opt for cheaper meat like chicken.

Chief Executive C. Larry Pope said high corn prices are eating into the company's profits. But he noted that crop prices have been falling in recent weeks, a trend he said could boost profits going forward.

"There is a little bit of a light at the end of this tunnel," Pope told analysts during a conference call. "We are seeing the future in live production better than we have previously."

Nonetheless, its shares fell 92 cents, or 3.7 percent, to close at $24.01 Thursday.

The Smithfield, Va., company reported net income of $120.7 million, or 74 cents per share, in the three months that ended Oct. 30. That compares to $143.7 million, or 86 cents per share, during the same period last year.

Adjusted earnings, which exclude a charge for early debt extinguishment, were 76 cents per share. Analysts surveyed by FactSet expected adjusted earnings of 72 cents per share, on average.

Revenue climbed more than 10 percent to $3.31 billion. Analysts expected revenue of $3.2 billion.

Smithfield's brands include Armour, Farmland and its namesake. In last year's quarter, a declining pork supply and booming exports helped the company's prices.

In this year's quarter, the company saw its cost of sales climb 13 percent to $2.89 billion, and selling, general and administrative expenses rise 16 percent to $200.8 million. It said sales climbed due to higher average unit selling prices and volumes in the pork segment.

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While the price of corn and soybeans are not at or near historic peaks as they were at the beginning of the summer, prices are still above historic levels. Feed is the biggest cost for pork producers like Smithfield. The company raises pigs on industrial farms, so its profits get squeezed when feed prices rise higher than pork prices in the grocery store.

A sluggish economy has kept pork producers from raising their prices as quickly as they'd like to offset the expensive grain. But this year has been far kinder to the meat industry than some previous years, when weak pork prices forced them to swallow huge losses from their farming operations.

Late last month Smithfield's competitor Tyson Foods Inc. said it raised pork prices by 13 percent during its most recent quarter.


Leonard wrote from St. Louis, while Murphy worked from Indianapolis.