Smithfield Q3 earnings hurt by feed costs

US - Smithfield Foods Inc., the world's largest pork producer, said Thursday that its third-quarter profit fell 15 per cent on a drop in hog production earnings and high feed costs.
calendar icon 2 March 2007
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Smithfield Foods, Inc. (announced that income from continuing operations for the third quarter of fiscal 2007 was $60.4 million, or $.54 per diluted share, versus income from continuing operations last year of $75.0 million or $.67 per diluted share. Sales were $3.3 billion versus $2.9 billion a year ago.

Income from continuing operations for the nine-month period was $144.0 million, or $1.29 per diluted share, compared to $175.6 million, or $1.57 per diluted share, last year. Sales for the nine months totaled $8.9 billion versus $8.7 billion in the same nine-month period of the prior year.

The beef segment reflected improved processing margins which were offset by losses in the company’s cattle feeding operations. Beef margins continue to be below historical levels due to limited export shipments, an overall shortage of cattle necessary for full processing levels and price pressure on all proteins.

The international segment reflected substantially higher earnings in all aspects of the company’s European operations. This includes the contribution of a full quarter of profits of Groupe Smithfield, a newly-formed, 50-50 joint venture with Oaktree Capital Management consisting of the company’s previously-owned Jean Caby operations in France and the assets of the recently-acquired Sara Lee European Meats business.

“Given the adverse conditions in hog production and cattle feeding, I am reasonably satisfied with our third quarter results,” said C. Larry Pope, president and chief executive officer. “I am particularly pleased with the results in our international operations. In addition, our recent acquisitions and investments in Sara Lee European Meats, Cook’s, Armour Eckrich and Butterball have all produced immediately accretive results,” he said.

“Looking forward, the recent rise in the price of corn, as well as other grain costs, will have a significant impact on our business. Corn prices in the range of $4 per bushel will likely remain for some time. In spite of increased raising costs, the futures markets indicate that hog production should continue to be profitable for several more quarters,” Mr. Pope said. “While the fresh meat complex remains challenging, we have put in place strategies to continue to improve margins in our packaged meats business. Our international operations are just beginning to deliver and our beef operations routinely outperform the industry. All of this bodes well for our long-term future. We have said many times that we will not be distracted by the ups and downs of the near-term business, but will focus on the longer term. Over the near term, I remain cautious; however, over the long term, I am very optimistic,” he said.

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