Pork producer Smithfield's 4Q profit falls nearly 63 percent as feed costs rise, exports fall

RICHMOND, Va. — Pork producer Smithfield Foods Inc.'s profit sank nearly 63 percent in the fourth quarter as feed costs rose and its exports to China and Russia declined.

The Smithfield, Va.-based company, whose brands include Armour, Farmland and its namesake, said Friday it earned $29.7 million, or 21 cents per share, for the period that ended April 28. That's down from $79.5 million, or 49 cents per share, a year ago, when its results included a $16.8 million benefit from insurance reimbursements.

Revenue rose more than 3 percent to $3.32 billion.

Analysts polled by FactSet expected higher earnings of 42 cents per share on lower revenue of $3.27 billion.

Smithfield has been in the spotlight recently after it agreed on May 29 to a $4.72 billion takeover offer from the majority shareholder in China's largest meat processor.

Smithfield stock fell 1 cent to close Friday at $32.80 per share. The takeover offer that Smithfield accepted was for $34 per share.

Like most pork producers, Smithfield has been caught in a tug of war with consumers. The company needs to raise prices to offset rising commodity costs, namely the corn it uses for feed. But consumers are still extremely sensitive to price changes in the current economy. By raising prices, Smithfield risks cutting into its sales should consumers cut back or buy cheaper meats, such as chicken.

Sales of fresh pork fell 3 percent as exports to China and Russia declined due to certification requirements for ractopamine, a feed additive for creating lean meat that's banned in both countries. A weaker yen led to lower shipments to Japan, the company said.

"This decline in pork exports pushed production back onto the domestic market and negatively impacted our hog production and fresh pork businesses," CEO C. Larry Pope said in a news release.

During the quarter, Smithfield's gross profit— the amount of sales left over after subtracting the cost of sales — fell nearly 18 percent to $281.4 million as its cost of sales rose 6 percent to $3.04 billion. Selling, general and administrative expenses increased about 10 percent to $209.7 million.

The number of live hogs it sold rose about 5 percent, but prices decreased and costs to raise the hogs increased.

Pope said Smithfield will continue to execute its growth plan to move it further toward a consumer packaged meats company, including increasing marketing spending and focusing on product innovation.

Smithfield Foods, one of the biggest pork producers in the U.S., agreed last month to be bought by Shuanghui International Holdings Ltd. The deal, which still faces a federal regulatory review and Smithfield shareholder approval, is the largest takeover of a U.S. company by a Chinese firm, valued at about $7.1 billion, including debt.