Smithfield Foods Inc. turned in worse-than-expected earnings for its second 2009 fiscal quarter ended Oct. 31, managing to eke out net income of only $4.2 million for the quarter, or 3 cents per share, on sales of $3.15 billion, lower than many analysts expected.

The results included a loss on continuing operations of 21 cents per share, about double the red ink analysts had anticipated. Nevertheless, Smithfield shares were trading up 89 cents at $7.02 per share in midday trading on the New York Stock Exchange.

Results turned positive on the gains from the sale of Smithfield's beef operations to Brazil's JBS S.A., which netted the Smithfield, Va.-based company $580 million in the quarter. Results for the same period a year ago included net income of $17.4 million, or 13 per share, on sales of $2.75 billion.

CEO C. Larry Pope doesn't expect the rest of the company's fiscal 2009 to be any rosier.

"We know it'll be a tough two quarters," Pope said in a conference call with analysts and the media. Among other expenses, the company still is feeding its hogs corn that cost $6 a bushel, the result of a market bet last summer that didn't pay off. But, he said, "We expect continued improvement in operating costs. I look forward to fiscal 2010 as a very good period for the company."

Fewer hogs

As promised, the company reported significant reductions in its hog herds, down 7 percent so far, since Smithfield announced it would cut the size of its herds last February. Pope indicated that its hog numbers should be down by about 10 percent by the end of fiscal 2009.

The company's hog production segment had operating losses of $58 million in the second fiscal quarter, on sales of $748.8 million, compared with an operating profit of $18 million for the same period a year ago, on sales of $614.8 million.

The pork processing segment and the company's international unit fared much better, with pork turning in an operating profit increase just shy of 50 percent, to $93.4 million on segment sales of $2.6 billion, and international operating profits of $11.0 million on sales of $402.5 million.

More than exports

Pope argued that soaring profits in the pork segment are the result of more than positive export markets — a circumstance that is changing anyway. Rather, he said, fundamental management steps taken over the last two years are being reflected on the company's bottom line.

"Changes in export market will impact the business, but the changes that we've made are being reflected in these pork segment profits," Pope said.

Fundamental steps such as reducing capital expenditures — in half — insuring liquidity, and reducing production of hogs and turkeys will keep the Smithfield boat on an even keel, he said.

"We were making management changes in the structure of our operating companies long before we even knew the (recession) might be there," Pope said. "I am satisfied that we're doing something about the situation. We're not sitting and waiting — as others are — for something to change and improve."

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