Smithfield Foods 2Q net income falls on charges

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Associated Press

Posted on December 6, 2012 at 3:01 PM

RICHMOND, Va. (AP) — Smithfield Foods Inc. said Thursday that its second-quarter net income fell on charges for early debt payoff, but its adjusted earnings beat Wall Street expectations as the world's biggest pork producer saw gains in its packaged meats and international business.

The Smithfield, Va.-based company, whose brands include Armour, Farmland and its namesake, reported earnings of $10.9 million, or 7 cents per share, for the three months ended Oct. 28, down from $120.7 million, or 74 cents per share, a year ago.

Smithfield said the early debt buyback resulted in a charge of $120.7 million. Adjusted earnings were 61 cents per share, beating analyst expectations of 45 cents per share.

Revenue fell about 3 percent to $3.23 billion as higher volumes were offset by lower meat and hog prices. Analysts polled by FactSet expected $3.31 billion.

The company said its volumes in its packaged meats business such as deli meats, bacon, sausage, and hot dogs, rose 2 percent during the quarter and its profit margins grew.

CEO C. Larry Pope said he expects the Smithfield's packaged meats business to "continue to lead the way."

Its fresh pork business rebounded in the second quarter after it saw higher supplies and weak U.S. retail demand in the first quarter, the company said.

Smithfield said its gross profit fell 10 percent, despite a 1.5 percent lower cost of sales during the quarter.

Pork producers like Smithfield are caught in a tug of war with consumers. The company needs to raise prices to offset rising commodity costs, namely the corn it uses for feed. But consumers are still extremely sensitive to price changes in the current economy. By raising prices, Smithfield risks cutting into its sales should consumers cut back or buy cheaper meats, such as chicken.

Its shares rose 56 cents, or 2.5 percent, to $23.46 in morning trading. Its shares have traded in a 52-week range of $17.55 to $25.12.

Smithfield also said Thursday it repurchased 3.4 million shares for $67 million in the second quarter.

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Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.

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