000111 Smithfield Sees Profits Hit by Floods

Smithfield, VA - Smithfield Foods Inc., the largest U.S. pork producer, said that flooding in North Carolina and lower profit margins would slash its fiscal third-quarter earnings.

“Results for the third quarter are expected to approximate the more normal level of earnings achieved in fiscal 1998, a year without record low hog prices,” the company said.

Smithfield earned $23.7 million, or 60 cents per diluted share, in the third quarter of fiscal 1998. In fiscal 1999, third-quarter earnings were $1.31, an unusually strong performance inflated by record low hog prices paid by Smithfield and other meat producers.

Analysts polled by First Call/Thomson Financial had expected the company to post earnings of $1.03 per share in the current third quarter ending Jan. 31.

David Nelson, food industry analyst with Credit Suisse First Boston, said he lowered his third-quarter earnings estimate to 52 cents from $1.10. He said the revision was sharper than he had expected, but he had known for some time that he would need to lower the forecast.

“They had such a blowout quarter last year. It was a question of how much below that would it be?” Nelson said. “I didn't expect it to be down this far. Clearly it is a disappointment, but I don't think this has any effect on their fourth quarter or next year.”

Nelson said packing margins fell sharply in December, and floods related to Hurricane Floyd hurt animal production operations. He said it could take several weeks to determine how hurricanes affect animals' breeding or feeding habits.

Hurricane Floyd swept along the U.S. Atlantic coast in September, killing at least 25 people and causing some of the worst floods ever in North Carolina and other parts of East.

“The meat-processing group's profitability, while sharply below last year's level, will be offset to some degree by profitability at the hog production group, where results are substantially better than last year,” the company said.

Smithfield, whose negotiations to buy Tyson Foods Inc.'s (NYSE:TSN - news) pork unit fell through a month ago, said it was still “optimistic about the future, particularly as we move into the fourth quarter and fiscal 2001, when we expect to have the full benefit of the Murphy Family Farms acquisition.”

Smithfield in September agreed to buy Murphy, the second-largest U.S. hog producer, in a stock and debt deal valued at $460 million at the time it was announced.

Credit Suisse's Nelson said the company's long-term prospects remained strong.

“I'm a big believer in Smithfield's long-term story and in their management,” Nelson said. “I think there is a lot of money to be made by owning this stock long-term.”

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