Source: MEATINGPLACE, 12/8/11

Smithfield Foods Inc. on Thursday reported a 16 percent decline in quarterly earnings, hurt by high-priced corn and a weak market in Europe, but predicted a strong 2012.

Fiscal second-quarter profit, however, beat analysts’ expectations, aided by strong export demand, and the company reported a 10 percent rise in overall revenue in the quarter.

“I’ve got to remind all of you that we live in a pretty tough neighborhood,” Smithfield Chief Executive C. Larry Pope told analysts on a conference call. “We don’t live in the cracker, candy and cookie neighborhoods, where everything’s plush and the lawns are green. We live in the meat district.”

Shares of the Smithfield, Virginia-based pork producer fell 2.45 percent to $24.32 in midday trading on the New York Stock Exchange.

Smithfield reported net income of $120.7 million, or 74 cents a share, in the quarter ended Oct. 30, down from $143.7 million, or 86 cents a share, a year ago. Excluding special items, the company earned 76 cents a share. Sales climbed 10 percent to $3.3 billion.

Analysts expected a profit of 70 cents a share on revenue of $3.2 billion, according to Thomson Reuters.
Packaged Meat

Packaged meat volumes increased by 1 percent, led by double-digit gains in major brands including Smithfield, Armour, Farmland and Curly’s in retail stores, Pope said on the call. Weakness on the food service side of the business, however, offset the improvement in retail demand.  

The company continues to target 3 percent growth in the overall packaged meats business for the year. “We’re only up slightly here at this point. We’ve got some digging to do as we get through the last six months of the year,” Pope said.

Pope said the company is breaking ground on a state-of-the-art hot dog and lunch meat plant in North Carolina that will lower the cost of producing those products “pretty dramatically.” The $85 million plant will be located next to the company’s Kinston cooked meat facilities.

Smithfield is also building a new innovation center in Smithfield where new products, packaging and seasonings will be created for packaged meats as well as on the fresh meat side, Pope said.
Exports

Strong exports to China and Korea boosted the company’s fresh pork business, Pope said.

Smithfield Chief Financial Officer Robert Manly said hog raising costs were coming down due to lower cash grain costs, which have improved the company’s outlook for hog production results in the second half of the year. “We anticipate costs to continue to decline modestly into fiscal 2013,” Manly said.

Manly said he was optimistic that lower grain costs and higher meat values, together with modest improvements in meat operations, will bolster European hog production results going forward.

The European Union this week approved export capabilities that should enable the company’s Romanian pork operations to export to other EU countries and access other world markets, Manly said. “This is the biggest event in the seven-year history in our Romanian investment,” he said.

Manly predicted results in the international business would return to a normalized range by the end of the fiscal year.

He expressed optimistic about the outlook for industry fundamentals and the company’s overall performance. “Fiscal 2012 will be a very strong year for Smithfield,” he said.

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