BB&T Capital Markets downgraded Smithfield to hold from buy and cut its per-share earnings target for the current quarter to 17 cents, from 48 cents.

"Following a record string of profitable quarters, hog-production profitability has deteriorated dramatically into loss-making territory, and we do not foresee a quick recovery," wrote BB&T analyst Heather Jones.

Shares of Smithfield fell 4 per cent to $30.27. The stock is up 18 per cent this year. Davenport Equity Research cut its quarterly earnings forecast on Smithfield to 30 cents a share, from 40 cents, while Banc of America Securities slashed its per-share estimate to 41 cents, from 56 cents. Analysts surveyed by Thomson First Call estimate Smithfield will earn 39 cents a share when the company reports results Nov. 29.

"Given the current level of live hog prices and the increased inventory, we do not think that Smithfield is currently making money in hog production," wrote Davenport analyst Ann Gurkin, who reiterated her buy rating and $35 price target. A Smithfield spokesman didn't return a call for comment. Smithfield's hog-production business is the company's most profitable unit on an operating profit basis.

Gurkin cut her operating profit estimate by 35 per cent to $50 million for Smithfield's hog-production business. For the three months ended July 29, the unit had an operating profit of $93 million.

Slipped
The US Agriculture Department reported that US inventory as of Sept. 1 for all hogs and pigs rose 3 per cent from the same time last year. Rising hog supply is hurting live hog prices, which have slipped 20 per cent since August.

"In recent weeks, hog prices have fallen from this summer's healthy levels to prices slightly below historic norms," wrote B of A analyst Edgar Roesch. He maintained his buy rating and $36 a share price target.

China will likely play a key role in the direction of hog prices. If China purchases more US-made pork, hog prices should improve, analysts said. Smithfield is a lading processor of fresh pork, beef and prepackaged meats in the United States. Analysts said the company's processed-meats business, such as precooked bacon and sausages, should help to offset weakness in hog production.

In this market, the company has made several acquisitions over the past year to improve its gross profit margin. Deals have included Sara Lee's European meats business and ConAgra Foods Butterball turkey brands.

Source: Dow Jones Market Watch