Source: MEATINGPLACE, 9/12/11

Two Wall Street analysts cut their full-year earnings forecasts for Smithfield Foods, expecting lower profits in the hog production business in the second half of the year to overshadow the company’s strong first-quarter results.

Smithfield’s hog production group reported robust first-quarter profits on Thursday due to favorable corn hedges and lower-cost wheat feeding, but higher feed costs and broad-based declines in hog futures are likely to weigh on results going forward, said BB&T Capital Markets analyst Heather Jones.

Cost-reduction efforts in hog production are affecting hog supplies and could also put pressure on the fresh pork division, Jones wrote in a note to clients.

Jones reduced her fiscal 2012 estimate for Smithfield’s earnings to $1.79 a share from her earlier forecast of $2.25 a share.

“Our prior estimate had assumed fresh pork margins above the normalized range, which now seems overly bullish. Should hog futures improve from current levels, there could be potential upside to our estimate,” she said.

Smithfield’s profit outlook could also get a boost if demand from China improves, she said. In recent weeks, however, Chinese demand has softened, which has been reflected in significantly lower cutout prices, she noted.

Deutsche Bank analyst Christina McGlone also lowered her 2012 profit estimate for Smithfield due to a weaker outlook for the hog production and international businesses. She now expects earnings of $2.23 a share, down from her previous forecast of $2.59 a share.

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