Smithfield Foods returns to a 3rd-quarter profit partly on increased sales overseas

Smithfield Foods returns to 3rd-quarter profit

SMITHFIELD, Va. — Meat processor Smithfield Foods Inc. said Thursday it returned to a profit in its fiscal third quarter, partly on continued strength in its packaged meats business as sales grew overseas.

Smithfield, like many meat companies, has been gradually recovering from a mix of high feed prices, low demand and industry consolidation.

Earnings were $37.3 million, or 22 cents per share, for the period ended Jan. 31. That compares with a loss of $105.7 million, or 74 cents per share, in the same quarter a year ago.

Results in the latest quarter beat analysts’ forecast for profit of 19 cents per share, according to a survey by Thomson Reuters. These estimates typically remove one-time items.

The prior-year period included pork restructuring charges, cattle inventory writedowns and other items. Excluding those, loss from continuing operations was 17 cents per share in that period.

Quarterly revenue dropped 14 percent to $2.88 billion from $3.35 billion, but international results were strong, up 3 percent to $343.1 million from $333.2 million. Wall Street projected $3.28 billion in total revenue.

Additionally, cost of sales slid to $2.6 billion from $3.26 billion.

There was one fewer week in the latest quarter compared with the year-ago period.

“The third quarter demonstrated the ongoing strength of our packaged meats business, which continues to deliver very strong margins,” President and CEO C. Larry Pope said in a statement.

Smithfield has been restructuring its pork group and closed six plants as part of its strategy. The company, based in Smithfield, Va., expects the restructuring to improve profit by $55 million this fiscal year and by $125 million annually starting in fiscal 2011.

The packaged meat unit’s operating profit improved to $145.3 million from $115.9 million, while profit from fresh pork dropped to $7.5 million from $13.5 million.

Pork profits have been pulled down by weak demand, overproduction and relatively high feed costs. Those factors have battered other meat companies, and drove poultry giant Pilgrim’s Pride into bankruptcy. Pilgrim’s Pride was eventually purchased by Brazilian meatpacker JBS SA.

Tyson Foods, the second largest pork producer after Smithfield, reported last month that its own pork division was profitable last quarter, even though prices had fallen by 6 percent. Tyson said it expects supplies to dwindle this year, which could firm up prices.

Smithfield has been relying of late on its branded products — like Ekrich and Patrick Cudahy — to offset weakness in fresh pork sales. Hog sales had also been an issue, but they rose 5 percent to $691.8 million from $660.5 million during the quarter.

Smithfield said live hog market prices in the U.S. improved in its fiscal third quarter, while domestic raising costs dropped.

Pope said the company expects its fresh pork margins will get better as hog slaughter levels continue to drop and a plant is closed in April.

For fiscal 2011, Smithfield said it anticipates dramatically improved hog production and solid pork results.

While a recovery of the meat industry would be good news for Smithfield and others, it may not bode well for consumers. Meat firms are hoping that as demand increases amid improving economic conditions, they will finally be able to pass on higher costs by raising prices in the grocery store.

Meat companies say there is no way they can return to economic health without boosting their prices. But families that are shopping on tighter budgets may not be happy with having to spend more.