SMITHFIELD, VA. — During a Dec. 10 conference call with analysts addressing its fiscal second-quarter earnings, Smithfield Foods executives addressed the hot-button issue of the surplus of hogs on the market and the industry’s efforts to reduce the overall herd size to offset widespread losses among producers and processors.
After recapping the company’s quarterly loss of $26.4 million compared with a loss of $32.5 million during the prior year (see: Smithfield swings to loss in quarter for details), Larry Pope, Smithfield’s president and chief executive, expressed optimism about the company’s performance, saying the company’s improved production cost continued in the quarter "as we chewed through this $6 corn," the last of which was fed at the end of its 2009 fiscal year. The impact of last year’s inflated feed costs lingered through the second quarter of fiscal 2010, said Mr. Pope, as those hogs have been marketed and the company’s P&L will now reflect lower-priced, $4 per bushel corn. "So we are not back in historic levels of the $2.50 and $3 corn," he said, "but we are far below those levels that we had previously locked in."
Mr. Pope next addressed the issue of herd liquidation, which he claimed Smithfield has done more than its fair share of contrasted with much of the industry. He said some decreases are evident in Canada’s lowered imports of feeder pigs and reduced slaughter and efforts to cut back herds have also been publicly touted among producers on the East Coast. However, more needs to be done in the country’s mid-section, said Pope. "I have not seen the significant Midwest reduction that would probably be needed to put this industry back in balance."
He added that more recently there have been hints of a shift toward liquidation in that region as producers are faced with the reality of the market. "People have made the decisions that it is simply not worth it…the opportunity for the profits are simply not there," which is good news for Smithfield.
Also good news for the company is its pork segment growth and the continued success of Smithfield’s packaged meats business. The pork segment’s operating profit of $173.7 million in the second quarter represented a 46% increase over the previous year’s $93.4 million second-quarter profit. In addressing packaged meats, Mr. Pope said, "These numbers speak for themselves," with quarterly operating profits of $131.1 million vs. just $40.4 million in the same time period last year."