Smithfield Foods Inc. (SFD) Thursday reported a net loss for the second quarter, hurt by lower sales and the absence of prior-year quarter's income from discontinued operations. Sales declined across all segments, but operating profit increased significantly in Packaged Meats, while Hog Production continued its woes.
The company's second-quarter net loss was $26.4 million or $0.17 per share, compared to net income of $1.7 million or $0.01 per share in the same quarter last year. For the first quarter, the company reported a net loss of $107.7 million or $0.75 per share.
Loss from continuing operations for the second quarter narrowed to $26.4 million or $0.17 per share from $32.5 million or $0.23 per share in the year-ago quarter.
The latest results included several items, including a higher than normal effective tax rate that increased earnings by $0.14 per share, restructuring and plant impairment charges of $0.03 per share in the Pork segment, and a loss on the extinguishment of the European credit facility that amounted to $0.02 per share.
Non-GAAP second quarter fiscal 2010 loss was $0.26 per share. On average, 11 analysts polled by Thomson Reuters expected the company to report a loss of $0.37 per share for the quarter. Analysts' estimates typically exclude special items.
The company reported income from discontinued operations of $34.2 million or $0.24 per share last year, related to the operations and sale of its beef business.
Sales for the quarter decreased to $2.692 billion from $3.147 billion in the prior year quarter, owing to lower fresh pork selling prices, exchange rate changes in international operations and significantly lower hog prices in the U.S. hog production business. Wall Street expected revenues of $2.71 billion for the quarter. Smithfield's first-quarter sales were $2.715 billion.
The company's operating profit rose to $1.8 million from $1.0 million in the prior year.
Segment-wise, total pork sales dipped to $2.242 billion from $2.590 billion and operating profit surged to $173.7 million from $93.4 million in the prior year.
Fresh Pork sales increased to $990.9 million from $1.259 billion, whereas its operating profit dropped to $42.6 million from $53.0 million in the prior year.
Packaged Meats reported revenues of $1.251 billion, lower than $1.331 billion reported last year, but its operating profit increased to $131.1 million from last year's $40.4 million, benefiting from pricing discipline, rationalization of low margin business, low raw material costs and the early benefits of the Pork Group restructuring plan.
Sales from the International division increased to $336.0 million from $402.5 million in the prior year. The segment's operating profit advanced to $15.6 million from $11.0 million in the previous year.
Hog Production sales declined to $554.9 million from $748.8 million, while the segment's operating loss widened to $167.3 million from $58.0 million in the prior year.
The company noted that while raising costs declined in the quarter, domestic hog prices were sharply lower as oversupply conditions persisted in the U.S.
For the first half of the year, the company's net loss widened to $134.1 million or $0.90 per share from $11.5 million or $0.08 per share in the prior year. Sales declined to $5.401 billion from $6.289 billion in the prior year.
Among others in the industry, Hormel Foods Corp. (HRL) said late last month that its fourth-quarter profit increased from the previous year, driven by lower costs, even as sales dropped 10% from last year.
Looking forward to the second half of fiscal 2010, Larry Pope, president and chief executive officer of Smithfield Foods, expects the company to be profitable. ''The combination of the many actions taken on the financial, operating and sales fronts make me extremely optimistic as this business returns to a more normal operating environment,'' he said.
The company expects export shipments to resume as the Chinese government recently announced its intention to lift its ban on imports of pork from the U.S., which is believed to help overall pork complex.
Smithfield reduced its exposure to commodity hog and grain markets through sow reductions and farm closings that began in February 2008. The company said today that due to the current and near-term industry dynamics, further liquidation is needed to reach a balance in supply and demand. These reductions are expected to lead to over 2.2 million fewer hogs annually by fiscal 2011.
The meat producer said its restructuring plan is ahead of schedule with estimated profit improvement of about $17 million in the second quarter of fiscal 2010. ''We expect this plan will deliver the targeted $55 million of profit improvement this year, after applicable restructuring expenses, and the full $125 million of annual benefits going forward," Pope said today.
SFD closed Wednesday's regular trade at $16.86, up from the previous close of $16.68, on 3.70 million shares.
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