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Ranchers.net

Thu Jun 8, 11:13 AM ET

CHICAGO (Reuters) - Hog and pork producer Smithfield Foods Inc. (NYSE:SFD - news) on Thursday posted a steep decline in quarterly profit as a glut of meat in the U.S. market cut into pork prices, sending its stock down as much as 6 percent.
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Fears over bird flu have hurt the profits of Smithfield and other meat companies, including industry leader Tyson Foods Inc. (NYSE:TSN - news), as overseas demand for chicken slumped sharply, leading to an oversupply in the United States and pressuring prices for other meats, like beef and pork.

"It will take some time to work through the excess protein in the marketplace. Pork margins continue to be under pressure," said Joseph Luter, Smithfield chairman and chief executive. "On the bright side, live hog futures are holding up well into the summer which bodes well for continued profitability in hog production."

Profit fell to $1.1 million, or 1 cent a share, in the fiscal fourth quarter ended April 30, from $85.4 million, or 76 cents a share, a year earlier.

Excluding unusual items, earnings from continuing operations were 9 cents a share. Analysts, on average, expected 6 cents a share, according to Reuters Estimates.

Analysts cut their estimates after the company warned in late April that earnings would fall well below estimates, though at least one analyst said Wall Street was not negative enough.

"We are concerned Street estimates do not fully reflect oversupply conditions," Pablo Zuanic, an analyst at J.P. Morgan Securities said in a research note. He rated the stock "neutral" and estimated fiscal year 2007 earnings of $1.41 a share, compared with the average analyst estimate of $1.82 a share, as compiled by Reuters Estimates.

Quarterly sales fell 7.7 percent to $2.68 billion.

Smithfield executives said the company is taking steps to try to improve profits despite oversupply and rising costs, including ceasing slaughter at a plant in Virginia and closing a Florida plant.

The company is also selling its Gorges/Quik-to-Fix Foods business.

But Smithfield also is expanding parts of its business in the United States and Europe and is in discussions to buy the European meat business of Sara Lee Corp. (NYSE:SLE - news).

The company took pretax charges totaling $10 million, or 5 cents per diluted share in the quarter related to an ongoing restructuring of its East Coast pork processing operations. It also recorded a loss of $3.6 million, or 3 cents a share, from the Gorges/Quik-to-Fix discontinued business.

Smithfield shares slid as low as $26.25 before easing to $26.62, down $1.25, or 4.5 percent, on Thursday on the
New York Stock Exchange.

At Wednesday's close, the stock was down almost 9 percent for the year, compared with an 8 percent decline for Tyson.

Smithfield traded at about 15.5 times next year's estimated earnings, well below Tyson's 19.2 multiple.
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