000261 Smithfield Profits Hit By Low Pork Margins, Floods

Smithfield, VA - Smithfield Foods Inc., the nation's No. 1 pork producer, said that fiscal third-quarter profits were severly hit by flooding in North Carolina and lower profit margins on fresh pork.

Smithfield reported net income for the quarter ending Jan. 30, 2000 of $17.5 million, or $0.36 per diluted share, down from $55.0 million, or $1.31 per share, in the record third quarter a year ago.

The latest results were sharply off Wall Street analysts' expectations of earnings of $0.57 per share.

The company said third quarter sales rose to $1.4 billion from $1.0 billion in the same period last year.

Shares in Smithfiled were down 9/16 at 15-3/16 in trade on the New York Stock Exchange, just above the year-low of 14-7/8 and compared with a year-high of 27-5/16.

“Naturally, we are disappointed with the third quarter,” said Joseph Luter, III, chairman and chief executive officer in a statement.

For the first nine months of fiscal 2000, profits were $46.6 million, or $.98 per diluted share, down from $68.1 million, or $1.69 a share, in the same period a year ago. Sales for the first nine months rose to $3.7 billion from $2.8 billion in the same period in fiscal 1999.

The company said the substantial decrease in net income for the third quarter was “primarily due to sharply lower margins on fresh pork compared to record margins last year.”

It said live hog prices rose 74% in the current quarter over the year-ago quarter and while this prompt sharply improved results for the firm's hog production segment, it was not sufficient to offset the pressure on meat margins.

Smithfield said processed meats margins were also hit due to sharply higher raw material costs and continuing after-effects from severe flooding that hit its hog farms and ham processing facilities in North Carolina in the fall.

Hurricane Floyd killed at least 25 people and caused some of the worst floods in North Carolina and other parts of the East when it swept along the U.S. Atlantic Coast in September.

Smithfield said the meat processing unit saw operating profit fall to $41.5 million in the third quarter from $128.7 million in last year's period, but hog production reported a profit of $13.0 million against a $24.7 million loss last year.

The hog production group results benefited from the firm's acquisition of Murphy Family Farms, which it said was immediately profitable and accretive to earnings.

CEO Luther said earnings in the meat processing industry have historically been volatile, but as a result of the Murphy acquisition, the firm is now 60% vertically integrated which will cut swings in quarterly profitability.

“If the futures markets are correct, there will be a further dramatic increase in profitability from hog production next year and fiscal 2001 should be the best year in the company's history,” Luter added.

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