Smithfield Foods Inc reported on Tuesday a larger-than-expected first-quarter loss due to low hog prices and a drop in pork sales because of the H1N1 flu and the recession.
But the nation's largest hog and pork producer assured investors that new measures, including a $1 billion credit facility and note sales, have reduced its risk of violating debt covenants.
U.S. hog prices recently dropped to a seven-year low as demand for pork has slowed both here and overseas due to the recession and worries about the H1N1 flu. The flu is commonly called swine flu although it is not spread by hogs or pork.
Smithfield had predicted its hogs would lose money and has said they might be unprofitable through the fiscal year, which runs through April 2010. It has responded by reducing its breeding herd.
The Smithfield, Virginia- based company reported a loss for the first quarter ended Aug. 2 of $107.7 million, or 75 cents per share, compared with a year-earlier loss of $13.2 million, or 10 cents per share.
Excluding one-time charges of $41.5 million, or 19 cents per share, to reduce its hog herd and for debt extinguishment, it posted a loss of $80 million or 56 cents per share. On that basis Wall Street on average had expected a loss of 53 cents per share, according to Reuters Estimates.
Revenue fell to $2.72 billion from $3.14 billion.
The hog production industry will very likely continue to incur losses until an industry-wide liquidation occurs, Chief Executive Larry Pope said in a statement. We believe the industry has finally reached an inflection point where liquidation must occur.
Smithfield had previously announced it would reduce its hog breeding herd by 13 percent, and most of the first-quarter charges were related to that effort.
The results were close to J.P. Morgan's expectations; and analyst Ken Goldman said that while the hog unit's results were worse than expected, the pork unit's were better.
U.S. hog prices averaged $42 per hundredweight during the quarter, down from $55 a year earlier, Smithfield said.
Its hog unit lost $162.1 million on an operating basis in the quarter, compared with a year-earlier loss of $38.8 million.
The pork unit, which includes fresh pork and packaged meats, had a 64 percent increase in profit to $101 million. The profit was entirely due to packaged meats, which includes such brands as Armour, Eckrich and Farmland. The fresh pork segment lost $6.8 million.
Smithfield has been working to convert more of its fresh pork into more profitable and convenient packaged meats.
Smithfield shares briefly dropped 4.6 percent in morning trading, but recovered to trade up 24 cents, or 1.8 percent, at $13.28 on the New York Stock Exchange.
(Reporting by Bob Burgdorfer, editing by Gerald E. McCormick)