This loss is compared to income from continuing operations last year of $23.4 million, or $.17 per diluted share. Sales were $3.1 billion versus $2.7 billion a year ago. Beef group results for this and prior periods are reflected as discontinued operations.

Net income from continuing and discontinued operations in the second quarter was $4.2 million, or $.03 per diluted share. After-tax income from discontinued operations was $34.2 million, or $.24 per diluted share, which includes the gain on the sale of the Smithfield Beef Group and a market value write down of cattle inventories. In the second quarter of last year, net income of $17.4 million, or $.13 per diluted share, includes an after-tax loss from discontinued operations of $6.0 million, or $.04 per diluted share.

"Our pork business continued to perform exceptionally well, even though raw material costs were 15 per cent higher than a year ago. These results were offset by unprecedented adverse conditions in the hog production industry," said C. Larry Pope, president and chief executive officer. "Raising costs were at record high levels as we were consuming high-priced grain purchased last summer. Meanwhile, hog prices were well below our raising costs," he said.

Mr. Pope said that fresh pork margins were at record high levels. "Packaged meats margins were strong, tracking slightly below record levels of last year. Groupe Smithfield and Animex results were below a year ago, reflecting high-cost raw materials and a shift in consumer preference toward lower-cost private label products. Turkey operations have not been able to increase wholesale prices fast enough to offset record high feed prices," he said.

In spite of live hog costs much higher than a year ago, pork operating earnings rose almost 50 percent above a year ago. Overall, fresh pork volume rose three percent and exports continued to be a strong factor in the market. Pork exports rose 29 per cent in volume and 52 per cent in dollar value.

Packaged meats margins were slightly below record margins of a year ago as high raw material costs could not be fully passed through in higher prices. While overall packaged meats volume decreased slightly, pre-cooked ribs, led by the Curly's brand, rose 33 per cent.

Hog production losses continued due to record high feed costs. Corn costs were 65 per cent higher than a year ago and soybean meal was 59 per cent higher. Cash raising costs increased to $63 per hundredweight versus $49 per hundredweight last year. Live hog market prices were $53 per hundredweight compared to $46 per hundredweight in the same quarter a year ago. Murphy- Brown, Smithfield's hog production subsidiary, has liquidated seven per cent of its US sow herd since its February 2008 announcement in order to balance supply and demand. Murphy-Brown expects to complete its 100,000 sow reduction program in the third quarter. This will result in fewer market hogs being raised by the company in the future.

"Pork exports have remained strong throughout the quarter and we expect exports to continue at a good rate, albeit at a slower pace than earlier this year. US pork remains the best valued pork in the world," said Mr. Pope. "The third quarter typically is our best season for packaged meats and holiday hams. Also, the efforts of our new leadership team in the pork group already are producing greater efficiencies and lower manufacturing costs," he said.

"We will experience slightly lower feed costs as we move through the third and fourth quarter. However, they will continue to be at high levels, compared with prior years. Herd liquidation in North America and throughout the world, together with lower production of poultry and beef, should strengthen all protein prices going forward," Mr. Pope said. "According to the futures markets, hog production should turn profitable in the first quarter of fiscal 2010," he said.

"While the next two quarters will be difficult due to record high grain costs, I am very optimistic about fiscal 2010 and beyond after these grain inventories have been worked through. The operational changes we have made, and those we are planning, combined with lower supplies of all proteins, should be very good for this company. We are in a very basic business, supplying food to average hard-working Americans. In tough economic times, people tend to cook at home by shopping at their local grocer. This is our core business and, as such, we should be better positioned than many as this recession takes hold," said Mr. Pope.

Further Reading

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