Tuesday, Smithfield Foods, Inc. (SFD), a fresh pork and packaged meats processor, reported a net loss in its fourth quarter, compared to profit in the same quarter last year, negatively impacted by poor performance in the International and Hog Production segments, which resulted in lower sales and higher expenses mainly on high feed costs. However, the loss per share was narrower than analysts' expectation. Smithfield added that it is initiating a further reduction of 3% of U.S. sow herd, effective immediately.
Fourth-quarter 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 last year. Excluding prior-year's discontinued operations, quarterly loss from continuing operations was $78.8 million or $0.55 per share, compared to income from continuing operations of $1.8 million or $0.01 per share in the prior year.
On average, 12 analysts surveyed by Thomson Reuters expected the company to report a loss of $0.60 per share for the quarter. Analysts' estimates typically exclude special items.
The company noted that in the latest quarter, a benefit of $13.1 million was realized related to foreign tax credits which favorably impacted income taxes.
Quarterly sales declined to $2.85 billion from $2.87 billion in the comparable period a year ago, missing seven Wall Street analysts' consensus revenue estimate of $3.06 billion. Total segment sales dropped to $3.39 billion in the quarter from $3.45 billion a year earlier.
While announcing the third quarter results back in March, Smithfield had said that it expects the fourth quarter to be another difficult quarter with continued substantial losses in hog production. The company now said that A(H1N1) virus had no significant effect on the quarter.
Smithfield, in the preceding third quarter, reported a net loss of $103.1 million, or $0.72 per share, compared to prior year's profit, hurt by one-time items and higher feed costs. Loss from continuing operations for the quarter was $105.5 million, or $0.73 per share, on sales of $3.35 billion.
In the fourth quarter, gross profit declined to $115.0 million from prior year's $206.0 million, and the company recorded an operating loss of $91.9 million, compared to operating profit of $29.3 million last year. In the quarter, selling, general and administrative expenses increased to $195.9 million from $194.3 million a year ago.
On a segmental basis, sales from Pork rose to $2.455 billion from last year's $2.451 billion, while its operating profit declined to $110.7 million from $138.5 million a year ago. Total pork volumes increased 2.5% from the year-ago period, and pork exports increased 3.3%, but prices fell. The company noted that margins for packaged meat expanded substantially compared to last year as operational efficiencies and sales coordination began to take hold. However, weaker fresh pork margins dampened the effect of significant gains in packaged meats.
In the International segment, quarterly sales fell to $257.2 million from $344.8 million last year, and operating profit plunged to $3.5 million from prior year's $30.5 million.
Hog Production sales declined to $615.8 million from $620.9 million last year, while the segment recorded an operating loss of $170.8 million in the quarter, wider than loss of $129.0 million last year. The company pointed out that market prices for live hog in the U.S. increased slightly to $43 per hundredweight from $42 per hundredweight last year, while domestic raising costs increased to $63 per hundredweight from $54 per hundredweight in the prior year, mainly due to 21% increase in cost of feed and feed ingredients. The company noted that raising costs are expected to begin moderating in the first quarter of fiscal 2010.
In the Other segment, sales in the fourth quarter climbed to $63.8 million from $36.5 million last year.
Among others in the sector, Austin, Minnesota-based meat producer Hormel Foods Corp. (HRL) reported a 4% increase in profit for the second quarter to $80.39 million or $0.59 per share, helped by strong sales of canned meat and Mexican products at its grocery business. Net sales for the quarter were $1.60 billion, up from $1.59 billion in the prior-year quarter.
In early May, meat products maker Tyson Foods, Inc. (TSN) posted a wider loss in the second quarter of $104 million or $0.28 per share, hurt by tax and restructuring-related charges, besides dwindling beef sales. Quarterly sales amounted to $6.31 billion, down from the previous year's sales of $6.34 billion.
For the fiscal year 2009, Smithfield's net loss was $190.3 million or $1.35 per share, compared to net income of $128.9 million or $0.96 per share last year. Loss from continuing operations for fiscal 2009 was $242.8 million or $1.72 per share, n comparison with prior year's income from continuing operations of $139.2 million or $1.04 per share. Annual sales increased 10%, including the effect of an extra week, to $12.49 billion from $11.35 billion in the previous year. Analysts estimated full-year loss of $1.33 per share, and sales of $12.66 billion.
Commenting on the results, Chief Executive Officer Larry Pope stated, "Fiscal 2009 was one of the most challenging years in over three decades for the company. We faced grain and oil markets that reached record highs and then fell precipitously. These input dynamics, combined with an oversupply of all proteins as well as a worldwide recession and credit constraints, put significant pressure on the business."
Looking ahead, the company said its highest priority in fiscal 2010 would be on continuing the restructuring of the Pork Group, continuing to reduce debt, improving liquidity and strengthening the balance sheet.
In February, the company had announced a restructuring plan for the Pork segment, which is expected to result in annual cost savings of $55 million in fiscal 2010 and $125 million by fiscal 2011.
While talking about the company's financial situation, Pope stated, "We are constantly evaluating options associated with pushing off near term maturities, seeking permanent covenant relief and reducing our overall debt levels. Toward that end, I am pleased to report that we are continuing discussions regarding refinancing with various lenders, well in advance of current maturities."
According to Smithfield, the meat business looks very good, but hog production business raises concern as it deals with an oversupply of live hogs and the unintended consequences of the current ethanol policy, due to which more than 30% of the U.S. corn crop being diverted from animal feed to ethanol production.
Smithfield said it has already reduced the size of its U.S. herd by two million market hogs annually, and is initiating a further reduction of 3% of U.S. sow herd, effective immediately. The company expects the planned reduction, combined with the additional cuts by its fellow producers, should shrink supply to a point where the industry can return to profitability.
In addition, the company said that it believes the A(H1N1) swine flu virus had only a short-term effect on U.S. fresh pork demand, which hurt its business in the month of May, and the domestic market conditions now began to move back to more normal levels, with consumers receiving accurate information about the virus. The company said the ongoing restrictions in some international markets, specifically China, is negatively impacting exports in the first quarter of fiscal 2010.
SFD is currently trading at $11.01 on the New York Stock Exchange, down $0.17 or 1.52%, on a volume of 400 thousand shares. In the past 52 weeks, shares traded in a broad range of $5.40 - $26.75.
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