Smithfield Records $190 Million Loss

by 5m Editor
17 June 2009, at 11:03am

US - US pork producer and pig meat processing giant Smithfield foods has reported a loss of $190.3 million for the last financial year.

The loss was on the back of a 10 per cent rise in sales compared to last year of $1.1 billion.

Last year the company has a net income of $128.9 million.

Smithfield said that hog production had suffered because of the record feed costs.

However, despite the losses, the company announced that it had achieved record profits in export sales and in the packaged meats division.

The company has reduced its debt during the year by more than $890 million and cut its capital expenditure by 62 per cent.

Smithfield has started to restructure its pork group with the aim of improving pre-tax profits by $55 million in the coming year and by $125 million in the 2011 financial year.

The current results have included the initial costs of this restructuring of $88.2 million.

During the year, Smithfield announced that it had merged with the Spanish meat processing company Campofrio, increasing its stake in the company to 37 per cent.

Smithfield has also completed the sale of its beef processing and cattle feeding operations for $575.5 million, giving a pre-tax gain of $99.7 million.

The fourth quarter for Smithfield saw the loss at $78 million, which was largely driven by losses in hog production because of continuing high costs. However, Smithfield said it expects these costs to moderate in the near future.

"Fiscal 2009 was one of the most challenging years in over three decades for the company," said Smithfield President and CEO Larry Pope.

"We faced grain and oil markets that reached record highs and then fell precipitously. These input dynamics, combined with an oversupply of all proteins as well as a worldwide recession and credit constraints, put significant pressure on the business.

"But despite the challenges we confronted, we did not sit on the sidelines and wait for the economic conditions to improve; we have taken numerous actions to make us a more profitable company: namely, we repositioned the company's operations and made meaningful improvements to our liquidity and financial strength.

"As a result, I am especially pleased with our packaged meats business which delivered record profits even as fresh pork was weak in the face of an economic downturn.

"For the full year, the pork segment produced record profits, before the $88 million of restructuring costs, and is set to deliver very strong results going forward," Mr. Pope said.

"While the meat business looks very good, we are concerned about our hog production business as it deals with an oversupply of live hogs and the unintended consequences of the current ethanol policy."

Mr Pope added: As we move into fiscal 2010, our highest priority is on continuing the restructuring of the Pork Group, continuing to reduce debt, improving liquidity and strengthening the balance sheet."

"I strongly believe that the hog production industry has reached an inflection point where, due to deep and extended losses, liquidation is now a recognised reality by all in the industry.

"To date, Smithfield has already reduced the size of its US herd by two million market hogs annually, and we are initiating a further reduction of three percent of our US sow herd, effective immediately.

"This reduction, combined with the additional cuts by our fellow producers should shrink supply to a point where the industry can return to profitability. This liquidation is long overdue," he said.

"We believe that the A(H1N1) virus had only a short-term effect on U.S. fresh pork demand, which hurt our business last month. As the consumer received more accurate information about the virus, we saw domestic market conditions begin to move back to more normal levels.

"Unfortunately, we continue to experience restrictions in some international markets, specifically China, which is negatively impacting exports in the first quarter of fiscal 2010."