Smithfield, Sanderson shares up after hard quarter

MILWAUKEE - Smithfield Foods Inc. on Thursday reported a 76 percent drop in its fiscal second-quarter earnings due to high grain prices, but its shares soared as the nation's leading pork producer said its liquidity was strong.

Sanderson Farms Inc., the fourth-biggest chicken producer in the U.S., also reported a tough quarter due to high costs, saying it lost nearly $52 million. Its shares also rose after its chief executive officer assured investors his top priority was protecting the company's balance sheet — not scooping up assets in the hard-hit meat industry.

Investors seemed relieved just days after the nation's largest chicken producer, Pilgrim's Pride Corp., filed for Chapter 11 bankruptcy protection, hobbled by fluctuating feed costs and a high debt load.

The meat industry is plagued by volatile feed prices and an oversupply of meat on the market. Demand in key outlets like foodservice is slumping as consumers cut restaurant spending.

But Smithfield said fresh pork volumes were up 3 percent in the quarter and it's poised to benefit as consumers look to save on costs and eat more of its meat, which is less expensive than beef.

C. Larry Pope, president and chief executive of Smithfield, Va.-based Smithfield, said as the recession continues to hit consumers, Smithfield will benefit. Just one-fourth of the company's business is foodservice, and the rest retail, which he said helps buffer the 5 percent drop the company's foodservice business is seeing. He said fiscal 2010 would be better.

"We are in the basic business of feeding average Americans," he said. "Pork is moderately priced. So as the recession hits some it should hit us less than others but we will have to see how that goes."

The Smithfield, Va.-based company said profit in its second quarter, which ended Oct. 26, fell to $4.2 million, or 3 cents per share, from year-ago profit of $17.4 million, or 13 cents per share. The results included a gain on the $580 million sale of its beef processing and cattle feeding operations.

Losses from continuing operations totaled 21 cents per share, compared with a profit a year earlier of 17 cents.

Sales rose to $3.15 billion from $2.75 billion, helped by pork exports, but corn costs were 65 percent higher than a year ago and soybean meal costs surged 59 percent.

Analysts surveyed by Thomson Reuters expected a smaller loss of 10 cents per share on higher revenue of $3.2 billion. They typically exclude one-time items from their earnings estimates.

Smithfield said the next two quarters will be difficult due to high grain costs, but production cutbacks should help. Pope said the company's hog production should be down 10 percent by the end of January.

Meat makers have been trying to cut production as a way to push price increases through. The oversupply of meat on the market has been keeping prices down, at a time when companies want to raise prices to help recoup input costs that peaked this summer.

Sanderson Farms told investors on a conference call Thursday that it made fall production cuts on Oct. 1, a month earlier than planned, in a bid to help recoup high feed costs.

The Laurel, Miss.-based company said it lost $51.9 million, or $2.56 per share, for its fourth fiscal quarter, which ended Oct. 31. That's in contrast to a profit of $24.1 million, or $1.18 per share, a year ago.

Its quarter was hurt by declining chicken prices, inventory adjustments and the hurricanes that hit the Gulf Coast in the fall. Excluding those one-time costs, the company's quarterly loss was $21.5 million, or $1.06 per share.

Analysts polled by Thomson Reuters, who typically exclude one-time items, expected a loss of 69 cents per share.

Revenue grew 8 percent to $460.2 million from $426.9 million, topping Wall Street's estimate of $449.9 million.

Sanderson executives tried to assuage investors, who had asked about the prospect of the company buying assets in the slumping industry. Chairman and Chief Executive Joe F. Sanderson Jr. said t the company's priority was to maintain its balance sheet.

In October, Sanderson Farms filed a shelf registration with the Securities and Exchange Commission to sell up to $1 billion in stock, on terms to be determined, a move that could fund future acquisitions.

"We would do nothing to stretch, challenge or put our balance sheet in jeopardy whatsoever," Sanderson said.

Shares of Smithfield Foods rose $1.31, or 21 percent, to close at $7.44 on Thursday, while shares of Sanderson Farms rose $4.84, or 19 percent, to close at $30.46.

__

AP Business Writer Jennifer Malloy Zonnas contributed to this report from New York.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.