Smithfield Foods Inc., the nation's largest hog producer and pork processor, reported a profit on Thursday for its third quarter after more than a year of losses.
Meat companies have struggled for two years with a mix of high feed prices, low demand and industry consolidation battered their profitability but they are showing signs of recovery.
"I believe we reached the other side of the longest and deepest down cycle that I have experienced in my more than 30 years in the meat industry," said Robert Manly, chief financial officer of Smithfield. "I have comfort that we are on the upside."
The company reported that it earned $37.3 million, or 22 cents per share, for the quarter, up from a loss of $105.7 million, or 74 cents per share, in the same quarter a year earlier, when Smithfield said the cycle reached its lowest point. Excluding one-time items, the company still earned 22 cents per share, versus 17 cents per share a year earlier.
Revenue dropped 14 percent to $2.88 billion for the quarter, in part because the quarter was a week shorter than last year and the company closed several plants.
The results beat analysts' expectations of 19 cents per share on revenue of $3.28 billion, according to a survey by Thomson Reuters.
Smithfield CEO Larry Pope said its biggest obstacle the past two years has been losses in its hog production segment. But those diminished in the third quarter as the company cut costs and closed unprofitable plants.
The company, based in Smithfield, Va., expects that restructuring to boost its profit $55 million this fiscal year and $125 million annually starting in fiscal 2011.
Pope said some cost increases, such as higher corn prices after weather damaged the crop, began to show up in the third quarter and will continue into the fourth. But he expects positive trends in the segment to continue.
Smithfield's international sales grew during the third quarter, even though it was unable to send products to Russia and China during the quarter. The company expects both countries to resume importing its products by the end of the year. International operating profits grew 71 during the quarter, excluding charges for debt restructuring and discontinued operations.
Its third-quarter profit in packaged meat, which it has focused its efforts on recently to offset weakness in fresh pork sales, improved to $145.3 million from $115.9 million as its profit from fresh pork dropped to $7.5 million from $13.5 million.
Competitors appear to be seeing similar relief. Tyson Foods, the nation's second-largest pork producer after Smithfield, reported a profit in its pork division for last quarter, even though prices fell 6 percent. Tyson said it expects the industry to produce less pork this year, which could firm up prices.
Smithfield's U.S. hog sales had been slow, but they rose 5 percent to $691.8 million during the third quarter from a year earlier as live hog market prices improved and the costs of raising hogs dropped.
"We have a lot more work to do in many areas but our labors are beginning to bear fruit," Manly said.
Shares of Smithfield rose 8 cents to trade at $19.07 in midday trading, while trading as high as $19.60 during the day Thursday.
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