Smithfield Foods posts smaller-than-expected loss
NEW YORK (AP) ó Smithfield Foods Inc., the nation’s largest hog producer and pork processor, posted a smaller-than-expected fiscal fourth-quarter loss Tuesday as pork sales remained stable despite the swine flu outbreak.
The Smithfield, Va.-based company said although the swine flu dampened demand for pork in the U.S. in May, the market is already back up to normal levels.
Chief Executive Larry Pope said on a conference call with investors that the company’s loss in the quarter had far more to do with rising animal feed costs, which dug into profits in the company’s hog production division.
“I can summarize the quarter and I can summarize the year very, very succinctly in saying that we have a hog production issue,” Pope said. “It doesn’t take a rocket scientist to figure out the issue is grain costs.”
Overall, Smithfield Foods lost $78.8 million, or 55 cents per share, in the three months ended May 3, in contrast to a profit of $2.4 million, or 2 cents per share, a year ago.
The loss was smaller than the 60 cents per share loss analysts polled by Thomson Reuters had expected.
The hog production segment lost $170.8 million alone in the quarter. The division raises hogs ó which means the company buys lots of animal feed, which is made from corn and soybeans. Both grains, particularly corn, have become more expensive in the past year.
Pope blamed the country’s ethanol policy, in part, for the rising costs. Pope called a national mandate for increased use of corn-based ethanol a “hidden tax” on producers and consumers. The demand for corn to meet the mandate for ethanol production has made corn a more expensive commodity, he said.
“It has been devastating to this industry,” he added on the call.
Grain costs weren’t the only culprit, however. The entire industry has been saddled with an oversupply of meat, which typically leads to lower selling prices for meat. Pork prices have generally fallen in recent months, hurt also by the recession, which has kept producers from boosting retail prices.
To help boost prices, Pope said the company will cut its sow herd by another 3 percent. The cut is on top of a 10 percent chop the company made in 2008.
“Further reductions in supply are likely necessary to put meat prices higher, and we are doing our part,” said Chief Financial Officer Robert Manly on the call.
Still, Pope warned investors that the company will likely report losses in its hog production segment into the second quarter of the next fiscal year.
“I think this coming year’s going to be certainly better than last year,” he said, but added “that’s not saying much.”
There were some bright spots in the quarter.
Revenue dipped just 1 percent to $2.85 billion from $2.87 billion, while pork sales edged up slightly to $2.46 billion. Analysts forecast higher overall sales of $3.06 billion.
Pope said the company’s packaged meats and retail businesses were performing well while the international business was a “mixed bag.”
Smithfield is still dealing with some swine flu-related restrictions in international markets such as China, which is hurting first-quarter exports.
For the year, Smithfield lost $190.3 million, or $1.35 per share, compared with a profit of $128.9 million, or 96 cents per share, in the previous year.
Annual sales rose to $12.49 billion from $11.35 billion.
Smithfield has more than $1.1 billion in available liquidity and lowered overall debt by more than $890 million in the current fiscal year. It is in ongoing refinancing talks with various lenders.
Shares fell 8 cents to $11.10 in morning trading.
AP Business Writer Michelle Chapman contributed to this report.