(Updates with more details, including comments from the chief
financial officer, and adds background)
Smithfield Foods Inc. (SFD) swung to a fiscal third-quarter
loss, reflecting costs from job cuts and red ink at its
hog-production segment tied to record feed costs.
President and Chief Executive Larry Pope expects the current
quarter to be another difficult period with "continued substantial
losses in hog production." However, he said he is "reasonably
optimistic" about the upcoming fiscal year, saying feed costs will
likely drop.
Smithfield's stock jumped 17% in intraday trading after Mr. Pope
assured investors on a conference call Thursday morning that "we
still have a very high level of confidence that we have got
sufficient headroom to make all of the covenants."
The company said it successfully negotiated covenant amendments
to its U.S. and European revolvers through the third quarter of
2010.
Smithfield Chief Financial Officer Robert W. Manly IV added that
during the third quarter Smithfield reduced its debt by $317
million and ended the quarter with total available liquidity of
$960 million.
While Smithfield has fared better than most meat producers, the
industry has had a rough year as the softening of once-booming
export demand collided with a now-easing spike in feed and
transport costs. Oversupply, weak pricing and wrong-way hedges on
feed costs drove firms such as Pilgrim's Pride Corp. (PGPDQ), one
of nation's largest poultry producers, into bankruptcy protection.
Most others have had to restructure debt and trim production and
costs in an effort to restore liquidity.
Smithfield has cut 10% of its U.S. hog herd over the past year
to counter oversupply. It also has eliminated jobs and closed
plants, sold its beef business to a Brazilian company and peddled a
5% stake to China's Cofco Ltd. to strengthen its balance sheet.
For the quarter ended Feb. 1, the world's largest pork processor
and hog producer swung to a net loss of $103.1 million, or 72 cents
a share, from year-earlier net income of $54.5 million, or 41 cents
a share.
The latest quarter included a restructuring charge of 38 cents
related to its plan, announced last month, to close six of its 40
processing plants and shed 1,800 jobs amid the liquidity squeeze.
Excluding that and other items, the loss from continuing operations
was 15 cents a share.
Sales, helped by an extra week in the latest quarter, rose 7.3%
to $3.35 billion for the company - which sells products under the
John Morrell, Smithfield Premium, Farmland Foods and Butterball
names.
On average, analysts polled by Thomson Reuters expected a loss,
excluding items, of 27 cents a share on revenue of $3.41
billion.
Gross margin plunged to 2.6% from 12.2% on the feed costs. The
restructuring charges helped widen the loss in Smithfield's
hog-production operations threefold despite an 18% sales increase.
Profits in pork processing dropped 42% as sales rose 8.5%
Smithfield said available liquidity at the end of the quarter
was $960 million, up from $900 million three months earlier.
Shares closed Wednesday at $5.95 and were inactive premarket.
The stock has lost three-quarters of its value since August.
-By Mike Barris, Dow Jones Newswires; 201-938-5658;
mike.barris@dowjones.com