Top U.S. hog and pork producer Smithfield Foods reported lower-than-expected quarterly earnings on Thursday due to a weak market for freshmeat, and shares fell sharply as a result.
The Smithfield, Virginia-based company, which also is a major beef producer and a partner in a large turkey operation, warned of higher meat prices ahead if prices for corn, ani mportant feed, keep increasing.
Smithfield, which has been rapidly buying other meat companies , said profit fell to $44.7 million, or 40 cents a share, in the second quarter that ended Oct. 29, from $51.6 million, or 46 cents a share, a year ago. Wall Street analysts on average expected 46 cents per share, according to Reuters Estimates.
"Fresh pork and packaged meats margins remained weak even as we entered the fall period, traditionally the best time of the year," Chief Executive Larry Pope said in a statement. "In addition, difficulties in the beef industry persist."
Meat companies have been hurt by an excess of meat and low prices due in part to increased production and lingering export disruptions from mad cow disease two years ago and bird flu overseas earlier this year.
"Our sources indicate that current protein supply remains abundant," Jonathan Feeney, analyst at Wachovia Securities, said in a research note on Smithfield.
Two weeks ago, Tyson Foods, the nation's largest meat company, said an excess of meat was partly to blame for its fiscal fourth-quarter loss.
Smithfield's revenue for the period was $2.81 billion, compared with $2.87 billion a year ago.The results included some earnings from the European meat operations of Sara Lee , a joint-venture that Smithfield entered into in August, and from the meat unit of ConAgra Food, which it bought in October. The ConAgra deal includes the Butterball turkey and Armour brands.
Looking ahead, the company said this year's higher prices for corn, a key livestock feed, will mean higher meat prices. "Any significant cost increases will have to be passed through in selling prices relatively quickly to maintain margins," Pope said in the statement.
Corn prices reached a 10-year high this fall due to increased demand by the growing ethanol industry. Operating profit in the hog unit fell 26% to $76.3 million and was the largest drag on earnings. Pork processing had an operating profit of $25.2 million, down from $26.6million a year ago.
Smithfield raises about 14 million hogs a year, which are sold at market prices to its own pork plants as well as tocompetitors. It is also part-owner of the nation's largest cattle-feeding operation.
Smithfield has grown to an $11-billion-a-year company largely through acquisitions both in the United States and abroad, either outright or with partners. Smithfield is in the process of buying smaller U.S. hog and pork producer Premium Standard Farms.