Source:  Lisa M. Keefe, MEATINGPLACE.COM, 12/10/09

Smithfield Foods announced its fourth fiscal quarter in a row ending in red ink — dragged down by poor hog prices — but CEO C. Larry Pope said he expects a return to profitability in the company's hog segment over the next year.

Pope made his remarks on a conference call on the company's financial results in its second quarter of fiscal 2010, ended November 1.

Smithfield posted a second-quarter net loss of $26.4 million, or 17 cents per share, on consolidated sales of $2.7 billion. That compares to a net profit of $4.2 million for the same period a year ago on consolidated sales of $3.1 billion, but those quarterly profits included income from discontinued operations.

The losses still are pinned to Smithfield's substantial hog production operations. The company reported that it has cut its cost in the business by 16 percent, but increased costs and falling prices year-over-year pushed it to an operating loss of $167.3 million in the quarter, compared with an operating loss of $58 million for the same period a year ago.

The good news

Outside of losses in the hog production segment, Smithfield's businesses performed well in the period. Operating profits in the pork segment – which includes Smithfield's packaged meats business --- rose 86 percent, to $173.7 million. For the packaged meats business alone, operating profits more than tripled, to $131.1 million for the quarter, compared with $40.4 million for the same period a year ago.

"In the packaged meats business, those numbers speak for themselves," Pope said in the conference call. "Next we need to figure out how to better communicate directly to the consumer and move this business further down the road."

Although he acknowledged that the current margins the company is achieving in packages meats — about 17 or 18 cents a pound on a pretax profit basis — won't be sustainable once the prices for the raw material rise, "I do believe [margins] will be well above where we've been in the past," Pope said.

Profits in the international segment saw a boost, and corporate costs for the period were cut nearly in half.

Next year

Looking ahead, Pope said he expects 2010 to be a year in which profitability returns to the hog production side of the business, but that they will be "unsatisfactory" profits. While demand is "good" and the international markets appear to be recovering, weights are up. Long-term pricing normalization still rests on squeezing overcapacity out of the industry, Pope said.

But Smithfield will not be among those squeezed: "We have built a balance sheet that can stand the continuation of current conditions, if liquidation goes slowly and losses persist," said CFO Robert W. "Bo" Manly.

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