Source:  Lisa M. Keefe, MEATINGPLACE.COM, 5/21/09

The H1N1 scare continues to take its toll on Smithfield Foods Inc., as BMO Capital Markets analyst Kenneth B. Zaslow lowered his forecast for the company in a report on Wednesday.

Zaslow noted that "the effect from H1N1 appears to be largely contained, as hog prices have recovered," and also that "SFD likely will not violate its debt covenants in
F2010 assuming current market conditions." Still, he expects Smithfield to register a per-share net loss for the 2009 fiscal year (ended May 2) of $1.27, and expects Smithfield to post earnings in fiscal 2010 of 99 cents per share, compared with an earlier estimate of $1.30 per share.

Analysts have been watching Smithfield's financial performance vis-à-vis the requirements of its debt covenants. A poor performance by the company could put it in violation of the covenants, but Zaslow now says that's unlikely.

Smithfield has seen ongoing improvement in its processing operations, lower feed costs and certain adjustments in its covenant calculation, due to the sale of its beef segment to JBS. These changes put Smithfield in comfortable territory regarding its covenants, Zaslow writes.

In addition, he expects that Smithfield will continue to shift its product mix to value-added, higher-margin products, such as pre-cooked bacon. And the ongoing restructuring and cost-cutting program is expected to add at least $50 million to the pork segment's operating profits in fiscal 2010.

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