SMITHFIELD, Va. —Smithfield Foods reported that the company’s earnings for its Fiscal Year third-quarter were down 61 percent due to higher costs. Results for the quarter, ending Jan. 29, also were impacted by costs associated with its share of Spanish processed-meats company Campofrio.

In reporting the results on Thursday, C. Larry Pope, Smithfield’s chief executive officer, said the company had an income of $79 million for the quarter, equal to 49 cents per share on the common stock. That compares with last year’s income for the same quarter, which was $202.6 million, equal to $1.22 per share. Third-quarter sales equaled $3,478.3 million, compared with $3,186.2 million for the quarter one year ago.

"I am very encouraged by the consistency of our packaged meats margins in periods of both high and low cost raw materials. We are beginning to realize the benefits of our long-term strategy to intensify our consumer-focused marketing programs and I applaud the efforts of our sales and marketing team who produced consistently solid margins in our packaged meats business while delivering share and distribution growth in several of our core brands and strategic product categories,” Pope said. “Although packaged meats volumes declined slightly, we achieved strong sales and volume growth in the third quarter in our Armour, Curly's, Farmland, Gwaltney, John Morrell and Kretschmar brands.”

Smithfield’s Fresh Pork group had an operating profit of $78.5 million, down 40 percent from $130.3 million during the third quarter a year ago. Fresh pork sales equaled $1303.2 million, up 19 percent from $1,093.1 million compared to the quarter last year.

"Favorable market conditions continued to support strong fresh pork profitability. Supply and demand remained well in balance, as healthy global demand for pork, particularly from Asia, drove double-digit increases in both export volume and dollars,” Pope said. “Although the hog production business recorded a loss for the quarter due to seasonal declines in hog prices, solid fundamentals remained intact. As anticipated, international segment profitability improved, producing record third quarter results after excluding the Campofrío charge."

The Packaged Meats segment produced an operating profit of $117.4 million, compared to $124.5 million for the same quarter a year ago. Segment sales for the quarter totaled $1,689.5 million, up 6 percent from $1,591.6 million last year.

"We had a very successful holiday ham season, as we leveraged our leading market position in the bone-in ham category to deliver both volume and share gains. In addition, we gained distribution in the BBQ, dry sausage, portable lunches, deli meats, and marinated pork categories," Pope added.

Looking at Smithfield’s pork production sector, Pope reported that its operating margins were below the normalized range at 1 percent, or $2 per head and reflected the seasonally low period for live-hog prices. Year over year, live-hog market prices increased 23 percent to $61 per hundredweight from $50 per hundredweight, while pre-interest raising costs increased 23 percent to $64 per hundredweight from $52 per hundredweight. Head sold decreased by 6 percent, largely attributable to the sale of non-core farm operations last fiscal year and the temporary effects of the Hog Production Cost Savings Initiative, he noted.

Moving forward, Pope said the company will work to achieve additional operational efficiencies and improve its cost structure.

"Market fundamentals remain supportive in both fresh pork and hog production with balanced supply and demand,” Pope noted. “We expect that fresh pork will continue to be a solid contributor to our overall results as U.S. protein supplies contract, supported by ongoing healthy export demand. In the hog production segment, raising costs should remain in the mid $60s per hundredweight this fiscal year and average in the low $60s per hundredweight for fiscal 2013.”

He also looks for profitability of Smithfield’s international business to remain strong in the upcoming quarters.

More details are available here.