Source: Rita Jane Gabbett, 2/1/11

Stephens Inc. analyst Farha Aslam boosted her fiscal 2012 earnings forecast for Smithfield Foods by more than 50 cents per share on pork margins estimated at over $19.00 per head.

Aslam raised Smithfield’s fiscal 2012 earnings forecast to $2.48 from $1.95 per share, driven by strength across the business including rising hog prices and below market grain hedges.

In a note to investors, she pointed to hog prices reaching 24-year highs last week, driven by strong export demand for U.S. pork given production challenges in other exporting countries such as the dioxin scare in Germany and massive hog culling in South Korea due to foot and mouth disease.

As fresh pork profitability continues to run well above historical levels, pork margins have averaged $19.08 per head in the fiscal 2011 third quarter ended in January, over twice the $8.92 per head margin a year earlier, according to Stephens Inc. calculations.

“Although we expect the margin is likely to decline from current levels we expect profitability to be supported into F2012 by the favorable supply/demand situation and strong export demand,” Aslam wrote, predicting Smithfield’s fiscal 2012 Hog Production profitability at $13 per head, up from $1 per head previously expected.

The profitability forecast now assumes hog prices of $68 per hundredweight in fiscal 2012, up from $62 per hundredweight forecast previously and an estimated Smithfield corn price cost of $5.75 per bushel, given current hedging positions.

Aslam expects Smithfield’s packaged meats to deliver 11 cents to 12 cents per pound in profitability next year.

She also valued Smithfield’s sale of its sow farm in Texhoma, Okla. at $60 million to $70 million and noted its recent debt repurchase should reduce interest expense by about $57 million annually, adding 24 cents per share to earnings.

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