Smithfield Foods Inc. reported a record quarterly profit, saying it expects a strong pork market to continue into next year amid tight supplies and little industry expansion.
Net income totaled $76.3 million for the three months ended Aug. 1, Smithfield’s fiscal 2011 first quarter, the company said today. That was a record for any of the company’s quarters and compared to a net loss of $107.7 million during the same period a year earlier. Sales rose 6.6 percent to $2.9 billion.
During the previous two fiscal years, Smithfield posted a net loss of almost $292 million.
There’s been a “dramatic” change in the hog production business this year as prices rose, Smithfield chief executive officer C. Larry Pope said today during a conference call with analysts following the release of the company’s quarterly results.
“Trends are very good at this point,” Pope said. “It’s fun to be in this business now. It’s fun to get up in the morning. The rough road appears to be behind us.”
Raising hogs turned profitable this spring following at least two years of losses triggered by soaring corn costs and an export slump. Producers cut herds, leading to a near-doubling in hog prices over the past 12 months, based on Chicago futures, as meatpackers were forced to bid more aggressively for shrinking supplies.
Smithfield, the largest U.S. pork producer, is benefiting from higher prices for the pigs it’s fattening and from stronger demand for the bacon, chops and other cuts it sells to supermarkets and restaurants. The company expects to raise about 17 million hogs this year.
With fewer hogs being shipped to market, live animal prices rose 38 percent during the recently completed quarter, to $58 per hundred pounds from $42 a year earlier, Smithfield said today.
The Smithfield, Va.-based company expects the industry’s profit resurgence to continue because of strong exports and shortages of certain cuts, such as pork bellies.
“There’s a shortage of pork all over the world,” Pope said during today’s call. “The futures market doesn’t indicate that’s going to change any time soon.”
October lean hog futures at Chicago-based CME Group rose 0.675 cent to 76.275 cents a pound in mid-morning trading today. In May, hog futures reached 90.175 cents, the highest in at least 14 years, based on the closest-to-expiration contract. The CME contract is based on carcass values.
Pork supplies “look to be tight for at least the next 18 months,” said Smithfield chief financial officer Bo Manly, who also spoke during the call. “Prospects for the balance of the year appear very strong.”
U.S. frozen pork supplies at the end of July totaled 391.3 million pounds, down 27 percent from a year earlier, according to the USDA.
The Smithfield executives said they see low odds for full-scale expansion across the pork industry, in part because bankers are emphasizing debt reduction rather than making loans to build new hog barns.
There currently is “creeping” expansion happening as some producers add animals to empty space in existing buildings, Pope said.
Still, the recent rally in corn prices “has reminded producers that profitability in the business can go away very quickly,” Pope said.
“I haven’t heard anyone talking about expansion,” Pope said. “I don’t think there’s a lot of excess cash around for new farms. Today, the market is sending us signals to de-lever. At this point the focus is, get the balance sheet in better shape.”
In late trading today, Smithfield shares rose 32 cents, or 1.9 percent, to $16.61. The stock, which trades on the NYSE under the symbol SFD, is up 30 percent over the past 12 months.