Two Wall Street analysts raised their earnings forecasts for Smithfield Foods after the company reported a smaller-than-expected loss in its third fiscal quarter ended Feb. 1 and gave upbeat assessments of its debt situation, export prospects and future hog margins.

"Our models indicate a strong bounce back in hog production margins over the summer," wrote J.P. Morgan analyst Ken Goldman in a note to investors, adding that cost savings, steady exports and cheaper corn should help. Of Smithfield's debt situation, he wrote, "We continue to model plenty of covenant room throughout FY09 and FY10."

Goldman raised his fiscal 2010 earnings forecast for Smithfield shares to $2.03 per share from 66 cents per share previously.

While not quite as optimistic overall, BB&T Capital Markets analyst Heather Jones improved her 2009 fourth fiscal quarter earnings forecast to a loss of 30 cents per share from a loss of 42 cents per share previously, due primarily to better operating results in the pork segment.

She cautioned, however, "While export demand seems solid and its balance sheet continues to improve, we are still cautious on earnings growth and the name, due to the need for increased domestic demand and/or additional live hog cuts."

Smithfield said in its earnings news release that its hog production unit has liquidated 10 percent of its U.S. sow herd, resulting in 100,000 fewer sows and reducing production of market hogs by about 2 million annually starting in fiscal 2010.

But CEO Larry Pope also acknowledged on a conference call that the industry as a whole needs to cut back more. 

Another view

On Friday morning Stephens Inc. analyst Farha Aslam cut her rating on Smithfield Foods to "Equal-Weight" from "Overweight" saying, "We are concerned that hog producers are not cutting production as the demand environment is weakening. This will mean that the Hog Production Group's profitability will continue to be at risk and earnings in the segment could be depressed for an extended period of time."