Live hog costs lead to Smithfield Foods loss

by Keith Nunes
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SMITHFIELD, VA. — The increased costs associated with feeding the hogs that supply its pork processing operations led Smithfield Foods to record a loss of $12.6 million for the first quarter of fiscal 2009. The result for the period ended July 27 compared unfavorably to the first quarter of fiscal 2008 when Smithfield Foods had net income of $54.6 million, equal to 43c per share on the common stock.

Sales for the quarter were $3,141.8 million, compared with $2,616.7 million for the same period during the previous year.

Sharply higher feed costs due to a 39% increase in corn and a 33% increase in soybean meal was cited as a reason for the loss. Hog raising costs were $61 per cwt during the first quarter of fiscal 2009 compared with $49 per cwt in the first quarter of last year. Live hog prices for the quarter increased modestly to $55.50 per cwt from $53.50 per cwt in the first quarter of fiscal 2008. The slight increase was not sufficient to recover the sharply higher costs, according to the company.

For the quarter, Smithfield’s Hog Production division had a loss of $38.8 million with sales of $725.8 million. For the first quarter of fiscal 2008, Hog Production had an operating income of $93 million on sales of $605.6 million.

"Given the overall adverse environment of the industry, I am pleased with the results for the current quarter," said C. Larry Pope, president and chief executive officer of Smithfield Foods. "Our fresh pork operations and our packaged meats business performed well in the face of sharply rising input costs. We are continuing to focus closely on our cost structure and improving plant operating efficiencies. Also, our new management structure is in place and moving forward nicely."

Smithfield’s Pork division saw its operating income increase from $26.5 million during the first quarter of fiscal 2008 to $61.7 million for the most recent quarter. Sales for the quarter were $2,579.2 million compared with $2,228.2 million for the previous year.

The division was bolstered by an export volume increase of 124% during the first quarter, with large increases in shipments to China, Russia, Japan, Mexico and the European Union. Rapidly rising costs elsewhere in the world combined with a weak U.S. dollar were cited as the primary reasons for the sharp increase in exports.

"Looking forward to the remainder of fiscal 2009, the future is uncertain," Mr. Pope said. "Even as hog prices recently have risen and grain markets have moderated somewhat, the delayed impact of grain costs will result in continued elevated raising costs. The volatile nature of both the domestic and world markets for meat prices and grains, combined with uncertainty surrounding the economy and the U.S. dollar, make a prediction of future results very difficult. However, we continue to pursue our long-term strategy of emphasizing our packaged meats business and improving our fresh meat operations. This strategy is working and is improving the base of our business."

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