Product realignment yields results for Smithfield Foods

by Keith Nunes
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SMITHFIELD, VA. — To cope with rising feed costs throughout last year and into 2007, Smithfield Foods, Inc. initiated an effort to realign its product mix to drive out inefficiencies. The results from the company’s first-quarter results for fiscal 2008 indicate the strategy is effective.

For the quarter ended July 29, Smithfield Foods posted net income of $54.4 million, equal to 47c per share on the common stock, which compares favorably with net income of $24.6 million, or 36c per share, for the same period during fiscal 2007. Sales for the quarter were $3,364,200,000, up from $2,768,900,000 in the first quarter of fiscal 2007.

"Given the challenges of higher grain costs and the continued adverse fresh pork environment, I am generally satisfied with our performance in the first quarter," said C. Larry Pope, president and chief executive officer.

Smithfield’s Pork segment had an operating profit of $26.5 million during 2008, compared with $17.8 million for the first quarter of fiscal 2007. The segment’s packaged meat volume grew 28%, primarily the result of the company’s acquisition of the Armour-Eckrich processed meats business from ConAgra Foods, Inc. during 2006.

The Beef segment also posted improved operating income, increasing to $19.1 million during fiscal 2008 from $4.9 million during fiscal 2007. The results reflected a more favorable operating environment, including increased volume and more exports, according to the company.

The International segment recorded an operating income of $14.9 million, which compared with a loss of $500,000 the previous fiscal year. However, the spread of classical swine fever at its hog farms in Romania may prove troublesome in the future. In its first-quarter fiscal results for 2008, the company confirmed an outbreak of the disease at a third company-owned farm.

The company previously disclosed inventory write downs and disposal costs associated with the outbreaks would have a $4 million to $5 million pre-tax impact to the company’s second-quarter results. Given the third outbreak, the company expects the costs to be higher.

"I continue to be pleased with the progress we are making in Western Europe and Poland," Mr. Pope said. "This most recent setback in Romania is disappointing and will certainly impact our results in that country for some time going forward. However, we remain committed to our Romanian strategy."

The company’s Hog Production segment reported an operating income of $10.7 million during the first quarter of fiscal 2008, compared with an operating income of $6.3 million for the previous year. Live hog market prices averages $53.50 per cwt for the quarter vs. $51 per cwt in the same quarter last year.

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