Smithfield reassures of economic strength

31-08-2009 | |

Smithfield Foods has closed plants, renegotiated debt, sold assets, and reduced its hog herd in the past year, and has a strong balance sheet, the company’s chief executive officer has told shareholders.

In June, the company reported a loss of $190 million for the fiscal year ended May 3, its first annual loss since 1975, largely because of losses on hogs.

Smithfield like other US meat companies, has struggled this past year, hurt by the recession, high feed costs, H1N1 flu, and slowing export sales. All of which, has meant the US pork industry is producing too many hogs.

The company has reduced its hog breeding herd by 13%, but Smithfield CEO Larry Pope said other producers need to reduce as well to bring supply in line with demand.

Sales in Smithfield’s pork and packaged meat business are doing well and Pope predicted the packaged meat results would be ‘a very good number’ in the upcoming quarterly earnings.

For fiscal 2009 the company’s hog unit reported an operating loss of $521.2 million, while its pork unit, which includes packaged meats, had an operating profit of $395.2 million.

“We are structurally strong and have a strong balance sheet,” Pope told shareholders. “As of today, this company can write a check for $1 billion and the check will clear.”

Much of the livestock industry’s problems began when the price of corn, an important feed, shot past $7 a bushel in 2008. Blame for much of that increase was placed on the use of corn to make ethanol. In addition to higher feed costs for livestock producers, Pope warned “the end result of this has to be substantially higher food prices.”

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