Smithfield Foods (SFD) beat Wall Street's fourth-quarter earnings estimates Thursday, its report noting that signs are emerging to indicate the beginnings of a turnaround in the battered and beleaguered hog industry.
Smithfield said its quarterly sales climbed a slight 2% to $2.9 billion, compared with the same time last year. That performance, however, was not enough to offset the declines for the rest of its full year at the nation's largest pork producer: Annual sales totaled $11.2 billion, down from $12.5 billion last year.
The company reported a fourth-quarter loss of $4.6 million, or 3 cents a share, narrowing last year's quarterly loss of $81.2 million. But when factoring in some sizable charges that affected pre-tax figures, Smithfield's adjusted fourth-quarter results came in with a profit of 18 cents a share. Wall Street analysts were expecting 16 cents, according to Thomson Reuters.
For the full year, Smithfield reported a net loss of $101.4 million, slimming down from a fat loss of $198.4 million last year.
Over the past two years, Smithfield, along with the rest of the hog industry, has faced one of the most grueling periods in the past 30 years, with the economy beating it down on one side while H1N1 virus fears were shutting off lucrative markets in China and Russia on the other. The pain only got worse as soaring grain prices drove costs higher while, simultaneously, an oversupply of hogs drove pork prices lower.
"These factors, combined with the extremely slow pace of herd liquidation in spite of mounting industry losses, all conspired to make for one of the longest and deepest downturns ever in live hog production," said Smithfield CEO Larry Pope in a statement. "Finally, the hog production cycle has turned. Live production losses, particularly on the cash side, have abated. Although our fourth quarter Hog Production segment results do not yet reflect the full benefits of the recently improved live hog production environment, the recovery in the cash and futures markets for hogs is encouraging and has allowed for significant year over year improvements in that business."
A Better Year Ahead in the Pig Business
Pope predicted that fiscal 2011 will likely bring profitability back to the hog production industry and Smithfield. The company anticipates keeping the size its herd in check as means to help stabilize prices.
However, one potential wild card is corn prices. Currently, they remain below $4 a bushel, but that figure may rise after the Environmental Protection Agency announces its decision next month on whether it will increase the maximum ethanol blending rate in gasoline from 10% to 15%.
Nonetheless, Pope said: "Given current favorable industry conditions and declining hog slaughter levels, as well as the considerable cost and operational improvements we have accomplished to date, we believe that Smithfield is poised to deliver a strong year in fiscal 2011."