Smithfield Foods Inc. (SFD), a fresh pork and packaged meats processor, on Tuesday reported a wider net loss for the first quarter, as sales declined from the previous year owing to lower volumes, currency fluctuations and a decline in fresh pork selling prices.
The company reported a first-quarter net loss of $107.7 million or $0.75 per share, much wider than the loss of $13.2 million or $0.10 per share reported in the same quarter last year.
Loss from continuing operations for the quarter widened to $107.7 million or $0.75 per share from $29.1 million or $0.22 per share in the prior year quarter.
Results of the latest period were affected by several items, including pre-tax impairment charges totaling $34.1 million on Hog Production farm assets and pre-tax debt extinguishment charges amounting to $7.4 million.
Loss from continuing operations, after adjusting for significant items, was $80.0 million or $0.56 per share.
On average, nine analysts polled by Thomson Reuters expected the company to report a loss of $0.55 per share for the quarter. Analysts' estimates typically exclude special item.
The company reported an operating loss of $74.8 million, compared to an operating profit of $2.5 million in the previous year.
Sales for the quarter were $2.715 billion, compared to $3.142 billion in the prior year quarter. Analysts expected revenues of $2.82 billion for the quarter.
Total pork sales dropped to $2.252 billion from $2.579 billion in the previous year with both fresh Pork sales and Packaged Meats showing decline in sales.
The company noted that fresh pork volumes, average unit selling prices, and margins were weak throughout much of the quarter. Fresh pork exports declined 34% from last year, primarily due to a significant decline in sales to China. But the segment returned to profitability late in the quarter and continues to be solidly profitable in the early weeks of the second quarter, it added.
In Packaged Meats, pricing discipline and rationalization of unprofitable business pushed margins higher, despite a 9% reduction in sales volume and $6 million in charges related to restructuring.
International sales dropped to $298.3 million from $405.3 million, although meat processing operations in Poland and Romania were profitable in the quarter.
Hog production losses continued in the first quarter, despite reductions in raising costs. Sales from hog production decreased to $552.2 million from $725.8 million. Hog prices also reflected the impact of the A(H1N1) outbreak and softer export demand.
The company noted that hog production losses continued as oversupply and recessionary conditions in the U.S. depressed domestic hog prices. Further, Smithfield Foods said pork segment restructuring activities are on-time as well as on-budget and benefits have begun to take hold.
Commenting on the results, Larry Pope, president and chief executive officer of the company, said, "This first quarter loss reflects the continuing adverse business environment in the hog production segment of the company's operations. While raising costs have continued to decline and the pork processing segment continues to deliver strong profits, they were not sufficient to offset the negative impact of low hog prices on the hog production business. The sharply lower hog prices reflect the impact of the A(H1N1) outbreak at the end of the prior quarter and softer export demand."
For the previous quarter, the company's net loss was $78.8 million or $0.55 per share, in comparison with net income of $2.4 million or $0.02 per share reported last year. Fourth-quarter sales declined to $2.85 billion from $2.87 billion in the comparable period a year ago.
Among others in the industry, Tyson Foods, Inc. (TSN) said last month that net income surged to $134 million or $0.35 per share from $9 million or $0.03 per share in the prior-year quarter. Sales for the quarter declined 2.8% to $6.66 billion from $6.85 billion in the same quarter last year.
Last month, Hormel Foods Corp. (HRL) said net income for the third quarter increased to $77.17 million or $0.57 per share from $51.95 million or $0.38 per share in the prior-year quarter, helped by an increase in earnings at its refrigerated foods segment, improved results at its Jennie-O Turkey Store segment and lower costs. Net sales for the quarter dropped to $1.57 billion from $1.68 billion in the previous year.
Looking ahead, Pope further stated, "The hog production industry will very likely continue to incur losses until an industry-wide liquidation occurs. With current live hog market prices substantially below raisings costs for the foreseeable future, we believe the industry has finally reached an inflection point where liquidation must occur.''
SFD closed Friday's regular trade at $13.04, up from the previous close of $12.73, on 2.29 million shares.
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