Smithfield Foods profit falls on glut of meat

Related tags Meat

Smithfield Foods, the largest US pork producer, has reported that
its quarterly profit fell by more than half as an excess of meat,
caused partly by Russia's month-long ban of US poultry imports,
hurt prices.

Smithfield Foods, the largest US pork producer, has reported that its quarterly profit fell by more than half as an excess of meat, caused partly by Russia's month-long ban of US poultry imports, hurt prices.

The Russian ban, which ran from 10 March to 15 April this year, diverted additional poultry to the already oversupplied US marketplace, hurting prices for all meats. Smithfield, like other producers, saw lower live hog prices and weak fresh pork demand due to the meat glut.

Russia, which bought about 1 million metric tons of US poultry last year, slapped the ban on imports amid concerns about salmonella and antibiotics in feed.

Shares of Virginia-based Smithfield have fallen by about 19 per cent since the beginning of the year, underperforming rival Tyson Food stock, which has risen about 22 per cent.

Meat company Hormel Foods, the maker of Spam luncheon meat and Jennie-O turkey, last month also blamed its lower second quarter earnings on the Russian ban.

Smithfield, whose bid to acquire the meat division of bankrupt agriculture cooperative Farmland Industries was rebuffed last week, said net income for the fiscal fourth quarter fell to $24.9 million( €26.5m), from $53.5 million a year earlier.

Sales for the quarter ended 28 April rose to $1.96 billion from $1.51 billion, helped in part by acquisitions.

Analysts believe it may take two to three months to pare the excess meat supply, but conditions in the meat sector should improve during the summer when sales often increase.

The extra meat from the Russian ban added to already ample domestic supplies that had developed after Japan reduced purchases of US beef last year when mad cow disease was discovered there.

Smithfield's earnings for fiscal year 2002 were $195.7 million compared with $223.5 million a year ago, a drop of more than 12 per cent.

Despite the glut of meat, Smithfield said operating income in its meat processing group increased 20 per cent in the quarter to $59.4 million from $49.5 million, helped by improvements in its pre-cooked and fully cooked products. The results exclude a $5.1 million pretax gain from the sale of a Canadian plant in the year-earlier period.

The company's beef processing division, which was formed after the acquisitions of Packerland Holdings and Moyer Packing last year, was marginally profitable on sales of $557.3 million.

While Farmland rejected Smithfield's offer to buy its meat division for an undisclosed price, the cooperative said it would still negotiate with the company.

During a conference call, Smithfield Chairman Joseph Luter said adding Farmland would have given Smithfield less than a 30 per cent share of the US pork market, a share that probably would not violate federal antitrust rules.

Related topics Processing & Packaging

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