001201 Smithfield Q2 Profit Doubles, Tops ForecastDecember 2, 2000Chicago - Pork producer Smithfield Foods Inc. said its second-quarter earnings doubled from a year ago and topped analysts' forecasts, powered by substantially higher prices for live hogs. Smithfield, the world's largest pork processor, reported record net income of $44.6 million, or 81 cents per share, in the quarter ended October 29, compared with $22.2 million, or 48 cents a share, in the same period a year earlier. Analysts had expected Smithfield to earn 77 cents a share, according to a poll by market researchers First Call/Thomson Financial. “They had a solid quarter, but earning aren't the story. It's whether they get IBP, that's what matters,” said Jeffrey Kanter, senior food analyst at Prudential Securities. Smithfield Foods earlier this month launched an unsolicited $2.7 billion bid for No. 1 fresh beef processor IBP Inc. (NYSE:IBP - news), topping an earlier bid from a unit of Investment banker Donaldson Lufkin & Jenrette. Joseph Luter, Smithfield's chairman, president and chief executive officer, said the company remained hopeful it will be able to complete a definitive merger agreement with IBP. “We are pleased with the prompt and encouraging response we received from the special committee of IBP's board and are now moving forward with the process,” the CEO said in a statement. “We have signed a confidentiality agreement, we have begun conducting our due diligence review, and we have had preliminary discussions with various regulatory bodies and other public officials.” On a conference call with analysts following release of the company's financial results, Luter declined to discuss whether Smithfield had been aware of the beef giant's projections for an earnings shortfall in 2001 that were detailed in a regulatory filing on Tuesday. But he told analysts, “We as a company try to make decisions based on the long term.” Smithfield, based in Smithfield, Virginia, said its hog production group drove overall profit growth in the second quarter, helped by high hog prices and the acquisition in January of Murphy Farms, which doubled the size of the company's hog-raising operations. Live hog prices were 20% higher than a year ago in the second quarter and 30% higher in the first six months of the year, Smithfield said. Operating profit in the production division totaled $72.7 million, up from $13.3 million last year. Results included a pretax gain of $7 million for insurance settlements for losses incurred at hog facilities related to Hurricane Floyd. Overall second-quarter net sales rose to $1.4 billion from $1.2 billion a year ago, reflecting a 12% increase in average unit selling prices for the company's meat products and sales related to the Murphy acquisition. Total sales tonnage remained essentially flat compared to the prior year, the company said. Second-quarter operating profit in the company's meat processing group declined 27% to $32.4 million from $44.3 million due to sharply lower fresh pork margins. The lower margins were due to the higher live hog costs, which could not all be passed through in the form of higher selling prices, Smithfield said. Processing Margins Seen Improving “Earnings from our hog production group more than offset declines in the meat processing group, further evidence that we have built an enterprise that can withstand various industry cycles and produce consistent results,” Luter said. He predicted profit margins in meat processing would improve in the third quarter over last year due to expected strong sales for the fall and holiday seasons. “We are optimistic that the third quarter will be substantially better than the same period last year, with the meat processing group providing the majority of the profits for the quarter, in sharp contrast to the first and second quarters,” he said. Luter said he would not be surprised if third-quarter per-share earnings are in the range of 70 to 90 cents. The consensus analyst forecast is for 78 cents a share in the third quarter.
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