Smithfield may post first yearly loss since 1975
Giant U.S. hog and pork producer Smithfield Foods Inc
Wall Street analysts, on average, expect a fourth-quarter loss on continuing operations of $63.17 million, or 56 cents a share, and a fiscal-year loss of $173.58 million, or $1.28 per share, according to Reuters Estimates.
A year earlier, on that basis, for the quarter Smithfield earned $1.8 million, or 1 cent per share, and earned $139.2 million for the year, or $1.04 cents.
Losses should not be surprising. The U.S. hog industry in general has been losing money since late 2007 due to high feed costs and slow pork sales. More corn going to ethanol has helped keep corn prices high, while the recession here and overseas has slowed pork sales.
Smithfield has warned that its hog unit, the nation's largest, would likely lose money for much of the current fiscal year, which began in May.
To cope, the company has reduced its sow herd by 10 percent, closed plants, restructured operations and negotiated new debt agreements. The smaller herd should mean about two million fewer market hogs over the next year.
While the outbreak in late April of the H1N1 flu, commonly called swine flu, has hurt pork sales, the impact on Smithfield may be more evident in future earnings reports since Tuesday's results will be for the period ended in April.
RECESSION HITS MEAT COMPANIES
The big problem is pork prices are down. Prices are down because exports are down and because domestic demand is down. We have a drop in demand because of a worldwide recession, said Ron Plain, agricultural economist at the University of Missouri.
The recession has had consumers eating less at restaurants and buying more lower-cost foods when they eat at home. That has hurt companies like Smithfield, which rely on sales of higher priced and more profitable cuts like spare ribs and tenderloins.
The cheaper cuts of meat are doing pretty well. Baloney is about the bottom rung on cheaper cuts of meat and is well above year ago levels, Plain said of the price. That is not the kind of performance we are getting out of the higher dollar cuts of meats.
Smithfield Chief Executive C. Larry Pope said earlier this year sales of hot dogs have increased during the recession.
For Smithfield, not all of the news is bad. The company has seen improved results in its packaged meats such as hams, sausages, and bacon.
The improvement has been driven by greater efficiencies, both in costs and sales, as well as lower input costs, Heather Jones, BB&T Capital Markets food analyst, said in a research note.
Smithfield shares are down 55 percent from a year ago, closing at $11.92 on Friday, versus $26.60 a year earlier.
(Reporting by Bob Burgdorfer, editing by Leslie Gevirtz)
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