Grain prices send Smithfield's profits tumbling 76 percent

Smithfield Foods Inc., struggling with soaring corn prices, on Thursday reported a 76 percent decline in profit for its second quarter.

Net income dropped to $4.2 million, or 3 cents per share, in the three months ended Oct. 26. That compares with $17.4 million, or 13 cents per share, in the same quarter a year ago.

Quarterly sales rose 15 percent, to $3.15 billion from $2.75 billion a year earlier.

"It's been a tough quarter for the company," said C. Larry Pope, Smithfield's president and chief executive officer, during a conference call with analysts. "It is probably going to be a tough two more quarters for us, as grain costs move through. But beyond that, the light at the end of the tunnel is very bright."

Smithfield's shares have lost more than two-thirds of their value in the past six months. They experienced a partial rebound Thursday, closing at $7.44 on the New York Stock Exchange, up 21 percent from $6.13 Wednesday.

Steve Marascia, an analyst with Anderson & Strudwick in Richmond, attributed the spike to moderating corn prices and Pope's forecast that Smithfield's hog-production business would return to profitability in the first quarter of fiscal 2010.

"The fact that it's up in a pretty down day is pretty darn good," Marascia said.

The company's hog-production unit recorded a loss of $58 million for the quarter, compared with an $18.6 million gain a year ago. Corn costs were up 65 percent from last year, a news release from Smithfield said, and hog prices declined.

The bright spots in the earnings report Thursday included a nearly 50 percent increase in pork-processing profits, to $93.4 million, and a 20 percent gain, to $11 million, in the international business.

Pope predicted that Smithfield would be harmed less than other companies by the recession. "We are in the basic business of feeding average Americans," he said. "Pork is moderately priced."

During the conference call, Pope and Robert W. "Bo" Manly IV, the company's executive vice president and chief financial officer, repeatedly sought to reassure analysts and investors that Smithfield's foundations were firm.

Pilgrim's Pride Corp., the nation's largest chicken producer, filed Monday for Chapter 11 bankruptcy protection from creditors.

Smithfield, Manly said, has $895 million in liquidity - "more than sufficient to provide for all of our capital needs comfortably through the balance of this fiscal year and through fiscal 2010." The company, he said, will have no problem fulfilling pension requirements and credit-covenant obligations.

Pope said the company took action early to bolster its financial footing.

The strategies included reducing its sow herd by 7 percent this year and selling its beef business in October to JBS SA of Brazil for $565 million in cash.

In addition, Manly said, Smithfield has imposed hiring and salary freezes, suspended bonuses, sold company planes and reduced capital expenditures.

"We have clearly not maintained an attitude of business as usual," he said.

Philip Walzer, (757) 222-3864, phil.walzer@pilotonline.com