Smithfield, Virginia (February 28, 2008)—Smithfield Foods, Inc. (NYSE: SFD) reported income from continuing operations for the third quarter of fiscal 2008 of $59.1 million, or $.44 per diluted share, versus income from continuing operations of $62.1 million, or $.55 per diluted share last year.
For the third quarter, net income of $54.6 million, or $.41 per diluted share, includes an after-tax loss of $4.5 million, or $.03 per diluted share, from discontinued operations. Last year's third quarter net income of $60.4 million, or $.54 per diluted share, includes an after-tax loss of $1.7 million, or $.01 per diluted share, from discontinued operations. Sales were $3.8 billion, compared to $3.3 billion a year ago.
Results for the third quarter were negatively impacted by a significant increase in the company's estimated effective tax rate. Smithfield believes this adjustment negatively impacted net income by $.06 per diluted share, based on previously-anticipated tax rates.
Following are the company's sales and operating profit for continuing operations by segment (in millions):
Profits of the pork segment more than doubled due to the acquisition of Premium Standard Farms in May, lower raw material costs, significant growth in exports and substantial improvement in packaged meats margins. Fresh pork volume rose 35 percent.
Packaged meats volumes were flat. However, packaged meats margins expanded about 50 percent. Pre-cooked product categories continued to grow, with several convenience-oriented lines showing double-digit growth, including pre-cooked bacon, sausage, ribs and entrees.
Overall, beef segment results increased more than $11 million. Beef processing earnings rose modestly and cattle feeding was profitable. Although profitable, beef processing margins continued well below historical levels due to continued depressed industry conditions.
Hog production operations experienced a loss, the result of considerably lower hog prices and higher raising costs. Live hog market prices averaged $37 per hundredweight, down from $44 per hundredweight last year. Raising costs rose to $49 per hundredweight versus $42 a year ago on higher grain prices.
In the Other segment, the company's joint venture turkey operations, Butterball LLC, suffered from significantly higher grain costs and equity income was below last year.
Operating profits were below the same quarter a year ago in the international segment. Groupe Smithfield experienced a slight decline in sales volume as well as competitive price pressures which decreased margins in the private label, cooked ham and cooked sausage categories in the French and Dutch markets. Animex operations in Poland continued its trend of improved earnings in spite of hog prices well above last year.
"We enjoyed very strong fresh pork margins that were much higher than historical levels as a result of lower hog costs and strong industry exports. Fortunately, we were able to capitalize on these margins during a period of very high slaughter rates," said C. Larry Pope, president and chief executive officer. "In addition, I am very pleased with our packaged meats margins, which benefited from low raw material costs and a continuing focus on this business. We believe that there still are more opportunities in packaged meats," he said.
"Looking forward, our fiscal fourth quarter will likely be very difficult, as our hog production operations probably will not achieve profitability. The key to overall results will be the extent to which our pork segment results offset anticipated weak performance from our hog production segment," Mr. Pope said. "It appears that the hog production industry is reacting to soaring grain prices by reducing herd size. The industry seems to have begun a necessary correction. Meanwhile, pork exports are expected to continue to grow, which will lend support to the hog and pork markets," he said.
With sales of $13 billion, Smithfield Foods is the leading processor and marketer of fresh pork and packaged meats in the United States, as well as the largest producer of hogs. For more information, visit www.smithfieldfoods.com.