010616 Pork Demand Spices Smithfield Earnings

Chicago - Smithfield Foods Inc., the No. 1 U.S. pork producer, said fiscal fourth-quarter earnings rose sharply as strong demand for fresh pork sparked a surge in profitability for its meat-processing group.

The Smithfield, Virginia-based company, whose attempt to acquire beef processor IBP Inc. was quashed by rival bidder Tyson Foods Inc. in January, earned $48.5 million, or 90 cents per share excluding unusual gains, compared with $28.5 million, or 51 cents, a year ago.

Analysts' estimates for the quarter ended April 29 ranged from 85 to 91 cents, with a consensus at 87 cents, according to market research firm Thomson Financial/First Call.

Including special gains of $5 million, or 9 cents a share, on the sale of IBP stock and a plant in Canada, the company earned $53.5 million, or 99 cents a share.

Smithfield's $32-a-share bid for IBP lost out to poultry giant Tyson. However, Tyson withdrew its own $3.2 billion offering for IBP in March, sparking on ongoing legal dispute in which IBP has asked a Delaware judge to enforce the merger agreement.

Smithfield's sale of IBP stock brought an unusual net gain of $45.2 million for fiscal 2001, or 82 cents per share. Unusual gains for the fiscal year totaled $48.6 million, or 88 cents.

“Earnings for this past year have set strong comparisons for the coming year, particularly in the first half,” Chief Executive Joseph Luter said in a statement, adding that he is confident fiscal 2002 would be another record year.

Luter told analysts in a conference call that the outbreak of foot-and-mouth disease in the European Union “had a slight positive impact” on Smithfield's profits. The outbreak led to a ban on meat imports to the United States and raised demand for pork exports slightly, he said.

“I am very optimistic that the next five years will be as good or better than the past five years,” Luter said, adding that the company plans to focus on marketing the Smithfield Lean Generation Pork brand.

Smithfield bought back 5.8 million shares in fiscal 2001 of an authorized 8 million shares, Luter noted. If acquisitions do not arise and Smithfield's price-earnings ratio remains near 12, the company will probably buy back more shares, he said.

Christine McCracken, senior food and agriculture analyst at Midwest Research, said Smithfield's outlook may get a little tougher as focus shifts to whether the pork market will go through difficulties similar to calendar 1998, when prices fell because of an oversupply of hogs.

Sales rose 8% in the fourth quarter to $1.5 billion from a year ago. Operating earnings for Smithfield's meat-processing group more than doubled to $54.6 million from a year ago on the demand for fresh pork, the company said.

Fourth-quarter hog-production group operating profits rose 17% to $66.4 million, reflecting a combination of higher production and increased live hog prices, Smithfield said.

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