Smithfield profits down as investments are set to mature

By Sean Roach

- Last updated on GMT

Related tags: Meat, Industrial agriculture, Influenza

Smithfield Foods has taken a major beating in its fiscal first
quarter, with profits dropping 50 per cent after acquiring a
foothold in Europe.

Smithfield, the largest US meat processor, operates in Romania, France, Poland and Spain, and built upon these operations with the buyout of Sara Lee's European meat businesses and most of ConAgra's meat brands earlier this year.

However, the company has taken a major fall, which it attributed to higher hog production costs, the sale of businesses and losses on its cattle feeding investment.

The meat processing and packaging giant posted profits of $26.6m (€20.7m) for the quarter that ended on July 30. This is down drastically from the $49m (€38m) it posted during the same period last year. The company blames a majority of this loss on the $14.3m (€11.1m) fallout from selling its Quik-to-Fix foods unit and the $4.2m (€3.2m) lost during the pending sale of its Brazilian hog operation.

Compounding these losses is the fact that the acquisition of enterprises in Europe and America have yet to fully mature as most assets from the ConAgra buyout will go through in the second quarter. Smithfield put out $575m (€457.6m) for the Sara Lee meat operations and $575m (€457.6m) in cash and stock for ConAgra branded meats.

The unsatisfying results for Smithfield comes at a time when many analysts think the market for meat is depressed. Tyson Foods recently attributed a $140m (€109m) net loss in the third quarter to a glut in the packaged-meat market.

The glut was caused by large supplies of beef, pork, and chicken that exceeded the amount shipped overseas due to export bans on U.S. beef and the decline of chicken exports related to avian influenza scares.

However, Thomas Morabito a food analyst with Susquehanna Financial Group was quoted by Reuter's financial service saying the meat outlook could be improving, with meat bans being lifted and a downgrade on the threat of avian influenza.

"The major risk for the stock is whether or not pork prices can hold up,"​ said Morabito. "The protein glut of a couple of months ago is definitely improving."

Seeming to echo this, Wall Street analysts are expecting hog prices, Smithfields largest profit generator, to stay strong for some time.

Smithfield seems little concerned with its drop in profits as they push for more business in their Eastern European holdings. The company owns the Polish processor Grupa Animex, which is expecting to nearly double the amount of sows it processes for the UK and Asian markets.

Smithfield employs over 52,000 people worldwide and has extensive hog production and pork processing operations across Europe, as well as joint ventures in China and Mexico. The company's total revenue for their first quarter was $2.77bn (€2.15bn), compared with $2.93bn (€2.28bn) a year ago.

Related topics: Processing & Packaging

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