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MILWAUKEE — The nation's largest pork producer, Smithfield Foods Inc. said Tuesday it posted a bigger first-quarter loss as one-time charges and lower domestic hog prices hurt results, despite curtailed production.
But the fresh pork losses were offset by significant improvements in the company's packaged-meat business and were in line with analyst estimates. The company has been shifting focus to packaged meats products like ham and bacon, which make more money and appeal to consumers eating more at home.
CEO Larry Pope said the company is now starting to see the benefits of its restructuring in its packaged meat business.
"This is the area we are extremely optimistic about," he told analysts on an investor call.
The company announced a restructuring this winter to cut 1,800 jobs and close about half a dozen plants as it focuses more on packaged meats. The moves aim to offset the volatile fresh pork business, which is more affected by swings in ingredient costs and market-based pricing for its products.
The Smithfield, Va.-based hog producer and pork processor said it lost $107.7 million, or 75 cents per share, compared with a loss of $13.2 million, or 10 cents per share, in the same period last year.
Excluding hog production impairment charges of $34.1 million and debt extinguishment charges of $7.4 million, the company's loss in the period ending Aug. 2 was 56 cents per share.
According to Thomson Reuters, analysts expected a loss of 55 cents per share. Analyst estimates typically exclude one-time items.
Revenue declined nearly 14 percent to $2.72 billion from $3.14 billion because of lower volumes, currency fluctuations in international operations and lower fresh pork selling prices. Analysts predicted sales of $2.82 billion.
Smithfield and other meat producers have been cutting production to help bolster their pricing. An oversupply of meat on the market has been keeping prices down and was particularly troublesome in the past year as the company recovered from record-high feed costs reached last summer.
Pope said the company fed the last of the high-cost grains to its hogs at the end of April, so the costs are coming through the inventory, which is creating a loss.
Hog prices are also sharply lower because of the swine flu outbreak, which decreased export demand 34 percent from last year, even though scientists agree humans cannot contract swine flu by eating pork. The decline of exports to China — prompted by worries of swine flu — are to blame, Smithfield said, though it added compared with previous years exports are still strong.
Pope said the company is benefiting from its restructuring and pointed to operating profits in the packaged meats business, which improved to $107.8 million, from $34 million last year. Production in the segment was down 9 percent. But in the hog business, the company lost $6.8 million, compared to earning $27.7 million in the quarter.
Pope said he was upbeat as he sees changes in the company taking effect and the overall industry improving as costs come down.
"I sort of feel like the world has been against us for 12 months, and this thing, it may very well be turning," Pope told investors on a conference call.
Looking ahead, Smithfield said it continues to cut production and anticipates other companies will continue to do so to help weather the downturn. Smithfield's U.S. sow herd is down 13 percent in the last year and a half.
Deutsche Bank-North America analyst Christina McGlone told clients in a note that she agrees with Smithfield's assessment that the industry has reached an inflection point where companies must liquidate their sow herds to cut production.
Shares of Smithfield rose 17 cents to $13.21 in morning trading Tuesday.
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AP Business Writer Betsy Vereckey contributed to this report from New York.
