Leading Producers Expect Turnaround in 2010

US - Sanderson Foods and Smithfield Foods have announced operating losses in their latest quarterly results but their respective positions are seen to be stronger than Pilgrim's Pride.
calendar icon 5 December 2008
clock icon 4 minute read

Forbes reports that operating losses reported by Sanderson Farms and Smithfield Foods were expected to be attributed to the rising cost of grain and falling consumer demand. Investors seemed relieved, however, to hear that the meat producers' liquidity positions were not as weak as those of Pilgrim's Pride, which opted for bankruptcy protection this week.

Joe Sanderson, Jr, chairman of Sanderson Farms said that although demand for chicken among grocery store shoppers has remained relatively stable, there have been sharp declines in restaurant orders, which have negatively affected pricing. Restaurants have suffered dismal traffic as more consumers opt to cook cheap meals at home rather than dining out.

In the fourth quarter, Sanderson swung to a loss of $51.9 million, or $2.56 a share, from a profit of $24.1 million, or $1.18 a share, in 2007's fourth quarter. Analysts polled by Thomson Reuters expected a loss of 69 cents a share. Sales climbed 7.8%, to $460.2 million, from $426.9 million, a year ago, which was better analysts' sales forecast of $449.9 million.

The company has been focusing on aspects of the business that it can control during the difficult financial climate, including instituting fall production cuts a month early and delaying plans to take its new deboning facility to full production. Its stock gained $4.82, or 18.8%, to $30.44, during Thursday's afternoon trading session.

Smithfield Foods said second-quarter net earnings fell 75.9%, to $4.2 million, or 3 cents a share, from $17.4 million, or 13 cents a share, a year ago. The quarter's results included earnings of $34.2 million from discontinued operations while the company's continuing operations posted a loss of 21 cents a share, compared with last year's profit of 17 cents a share. Analysts projected a loss of 10 cents a share. Sales rose 14.6%, to $3.1 billion, from $2.7 billion a year ago. Analysts forecast sales of $3.2 billion.

Smithfield assured investors that it has improved its liquidity position in light of the recent decision by Pilgrim's Pride to opt for bankruptcy protection. Smithfield said the recent sale of its beef operations bolstered its cash cushion and that it has enough capital to meet operation costs and credit commitments through fiscal 2009

"Our projections indicated that we are very comfortable with maintaining compliance in the second half of fiscal 2010," said Chief Financial Officer Robert Manly during a conference call. He added that the company believed an extension would be granted if needed for 2010 obligations, concludes the Forbes article.

Particularly strong in the pork sector, the report from Smithfield Foods made the following statement about its poultry interest, "Butterball LLC, the company's joint venture turkey operation, experienced a substantial loss versus a profit a year ago as higher grain prices increased raising costs dramatically. Butterball announced production cutbacks during the quarter and major competitors announced or implemented cutbacks as well."

Further Reading

- You can view the 2nd quarter report from Smithfield Foods by clicking here.

Further Reading

- You can view the 4thquarter and fiscal year 2008 report from Sanderson Foods by clicking here.
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