Shares of Smithfield Foods Inc. (SFD) surged higher in Thursday trading after the company reported a third-quarter loss that was less than analysts expected and said it would focus more on the higher-margin processed meats business.
Smithfield , the nation’s largest hog producer and pork processor, said it lost 15 cents per share in the quarter ending Feb. 1, 2009, excluding a restructuring charge and other one-time items, on sales of $3.35 billion.
Analysts expected a loss of 27 cents per share, excluding charges, on sales of $3.41 billion. On a GAAP basis, Smithfield lost $103.1 million, or 72 cents per share. In the year ago quarter the company earned 41 cents per share on sales of $3.1 billion.
One of the most significant problems the company faced during the quarter, asserted C. Larry Pope, Smithfield’s president and chief executive, was that the company’s cost structure continued to reflect high-priced grain purchased last summer.
Indeed, domestic raising costs rose to $62 per hundredweight versus $49 per hundredweight a year ago, while live hog prices rose only slightly, to $40 per hundredweight from $37 per hundredweight.
He said those high prices kept Smithfield’s raising costs at near record levels. Mr. Pope did say the recent decline in grain prices will begin to work its way through the company’s cost structure, which should provide for a better performance in hog production operations.
Last month Smithfield announced it would restructure its Pork segment. It said 1,800 jobs would be cut and close six factories, effectively ridding itself of 10 percent of its production, which will in turn help pricing. Smithfield said the restructuring actions will allow it to save $55 million in 2010 and $125 million by 2011.
The company expects the difficult conditions to persist throughout the current quarter, with “continued substantial losses”in hog production. In response they will be shifting production to packaged meats such as sausage, bacon and deli meats which are more immune to volatile ingredient costs than the whole hog business.
Mr. Pope said he was upbeat about the company’s prospects in fiscal 2010 given the restructuring, the focus on packaged meats and declining feed costs. His optimism sent the shares 34 percent higher on Thursday, providing a little relief for investors who have now seen their investment fall by only 43 percent year-to-date.
Smithfield also said it will not be acquiring any companies or enter into any joint ventures. It has long been known for growing in that manner, but said that period of growth is over, and will instead focus on better assimilating those acquisitions. It has also made good progress improving its balance sheet, which now shows $960 million in available liquidity and $700 million in debt reduction since the fourth quarter of 2008.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
