Smithfield posts third-quarter loss, increased sales

by Bryan Salvage
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SMITHFIELD, VA. — Smithfield Foods Inc. suffered a third quarter net loss of $103.1 million ($.72 per diluted share), including non-recurring items and charges. Sales, however, were $3.3 billion versus $3.1 billion a year ago. The current quarter included 14 weeks compared to 13 weeks in last year's third quarter.

"Our results indicate that, despite the difficult environment and losses we have sustained in swine production, many parts of Smithfield are performing extremely well," said C. Larry Pope, president and chief executive officer. "Our focus on improving packaged meats results is paying off. We earned record margins in this business in the quarter. Once our restructuring plan takes hold, these margins are expected to widen even further."

Smithfield had $960 million in available liquidity at the end of the third quarter. The company reduced overall indebtedness by more than $700 million since the fourth quarter of fiscal 2008, including more than $300 million in the third quarter. Debt to total capitalization has been reduced to 53%.

Record packaged-meats results were offset in the pork segment by $84.8 million ($.38 per diluted share) of restructuring charges and weaker fresh-pork margins. Fresh-pork volume was flat on a comparable basis to last year. Total packaged-meats margins expanded substantially despite a modest volume decrease of 4% compared to a year ago due to price discipline and continued emphasis on operating efficiencies.

Export demand in several markets was significantly stronger than a year ago. Third-quarter exports last year included sales of 70 million lbs. of pork carcasses to China, representing 22% of total exports. Even though there were no similar sales this quarter, export sales were down only 2% from the record levels of last year. Excluding the incremental carcass sales last year, export sales rose 26%.

Smithfield's top five importing countries, China/Hong Kong, Japan, Mexico, Korea and Russia, represent more than 80% of total exports. Exports to these countries, with the exception of Russia, increased between 11% and 75%.

International segment results were below those of a year ago.

Hog-production losses continued due to extremely high feed costs. Domestic-raising costs increased to $62 per cwt versus $49 per cwt in the prior year. Live hog-market prices in the U.S. were $40 per cwt compared to $37 per cwt last year.

Murphy-Brown, Smithfield's hog production subsidiary, has liquidated 10% of its United States sow herd in the last year. This has resulted in 100,000 less sows, which will result in production of approximately two million fewer market hogs annually, beginning in fiscal 2010.

The large increase in other segment sales was primarily due to the sell-off of $50.9 million of the company's cattle inventory. Lower segment results reflect cattle-inventory write downs.

In February, the company announced a wide ranging restructuring plan for its pork segment. "We expect the pork group restructuring plan to result in annual cost savings of $55 million in fiscal 2010 and $125 million by fiscal 2011," Mr. Pope said. "This plan will create true synergies between our independent operating companies and produce more opportunities to improve the bottom line in the future."

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