020528 Smithfield Expects Lower Results

Chicago - Smithfield Foods Inc., the nation's largest pork producer, said it expects quarterly results to suffer, due to a U.S. meat glut caused by Russia's curtailing of U.S. poultry and pork imports.

"We are going to have a down quarter," Chief Executive Joseph Luter III told investors at a presentation in New York. "I think it's the first down quarter we've had in seven quarters."

Luter did not provide estimates for the fiscal fourth quarter, which ended in April. Wall Street analysts polled by Thomson Financial/First Call had forecast profits of 19 cents to 37 cents a share, for an average of 29 cents, compared with 46 cents a year earlier.

The company is scheduled to report fourth-quarter and full fiscal-year results on June 5.

Shares of Smithfield were down 54 cents at $19.01, a drop of 2.8 percent, on the New York Stock Exchange.

"George Bush put tariffs on imported steel," Luter said. "Russia retaliated and banned poultry and dramatically cut back on U.S. pork products into Russia."

The resulting U.S. glut was "totally unforeseen" and has placed Smithfield's margins under pressure, he said.

"The ban has been lifted but we still haven't gotten back to pre-ban volumes," Luter said.

In early March, the Bush administration announced tariffs of up to 30 percent on imported steel to protect U.S. steel producers.

"The meat glut has not resolved itself yet. We are far from out of the woods," said David Nelson, food analyst with CS First Boston. He stood by his "strong buy" rating on Smithfield stock.

Luter said Smithfield will continue expanding in Poland and Mexico, but doubted it will add to its U.S. beef operations.

The acquisition of two beef companies last year added $2 billion in beef sales, making Smithfield the No. 5 beef processor in the United States.

"We don't plan to get substantially bigger in the beef business unless a unique opportunity comes around, and we don't anticipate that," Luter said.

Smithfield bought Wisconsin-based Packerland Holdings Inc., the nation's fifth-largest beef processor, in October. That followed the purchase last June of Pennsylvania-based beef company Moyer Packing Co.

"We got into it (beef business) for one reason: to be able to offer case-ready beef and pork," Luter said.

The market for case-ready meats should improve as supermarkets seek to save money on in-store meat cutting.

"The one big reason is Wal-Mart has embraced it enthusiastically," Luter said. "The stores they are building do not have a back-room butcher shop, they are going 100 percent case-ready. We expect other people will follow."

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