Difficult market conditions hinder Smithfield income

by FoodBusinessNews.net Staff
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SMITHFIELD, VA. — Tough market conditions in hog production and cattle feeding led to lower third-quarter earnings at Smithfield Foods, Inc., while the company’s sales moved higher.

Net income in the third quarter ended Jan. 28 was $60,400,000 equal to 54c per share on the common stock, down 19% from $75,000,000, or 67c per share, from the same quarter in the previous year. Sales were $3,278,800,000, up 12% from $2,926,700,000 in the previous year.

Operating profit in the pork segment totaled $102,400,000, up 8% from the same period a year ago. Sales in the segment were $2,304,600,000, up from $1,945,900,000 during the same quarter of the previous year.

In the beef segment, operating profit fell 41% to $1,300,000. This decline came despite a narrow gain in beef sales to $638,300,000 from $603,000,000 the year before.

Operating profit in hog production plunged to $4,500,000 from $64,700,000 in the third quarter of fiscal 2006. Sales in the segment, meanwhile, dropped to $428,500,000 from $432,800,000 in 2006.In contrast to the sharp decline in hog production, operating profit in the international market soared to $24,100,000 from $1,600,000. The strong gain came despite an 18% decline in sales to $235,000,000. The company attributed the income of the international segment to higher earnings in European operations, including a contribution of a full quarter of profits of Groupe Smithfield — a new joint business with Oaktree Capital management.

The lower numbers in hog production were due to higher raising costs, and the beef segment had improved processing margins offset by losses in the company’s cattle feeding operations. Overall, beef margins were lower than in the past as a result of limited export shipments, a shortfall of cattle for full processing levels and price pressures on proteins.

"Given the adverse conditions in hog production and cattle feeding, I am reasonably satisfied with our third-quarter results," said C. Larry Pope, president and chief executive officer. "I am particularly pleased with the results in our international operations. In addition, our recent acquisitions and investments in Sara Lee European Meats, Cook's, Armour Eckrich and Butterball have all produced immediately accretive results."

Mr. Pope said the recent rise of the price of corn and other grain costs will have a significant impact on the business. He also said international operations are just beginning to deliver, and the company’s beef segment is generally stronger than others in the industry.

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