US meat processor Smithfield Foods has seen full-year earnings tumble by over a third after losses from hog production led to a slump in fourth-quarter profits.
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The company booked income from continuing operations of $139.2m for the year to 27 April, a fall of 34% on the year.
During its fourth quarter, income from continuing operations reached $1.8m, sharply down from the $51.8m posted last year.
The fall in fourth-quarter profits saw Smithfield shares drop 5.1% in early trading to US$28.59.
Smithfield said it had experienced a “substantial loss” from hog production during the fourth quarter as the business was squeezed between lower hog prices and higher grain costs.
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By GlobalDataHigher feed costs also hit the company’s international hog business, which also saw volumes in Romania slump after a swine fever outbreak.
President and CEO Larry Pope said Smithfield’s hog business had witnessed “enormously difficult conditions”. Losses from the unit outweighed gains from Smithfield’s pork operations, which saw margins increase.
“Exceptional results in our pork operations were more than offset by extremely poor conditions in hog production,” Pope said. “Domestic and export volumes were at record levels, and I am extremely pleased with the packaged meats side of our business, where we continue to drive out costs and improve margins. On the other hand, there were major challenges in the hog markets as live hog prices were low and grain prices were high.”
On a brighter note, Smithfield saw revenue jump 21% to $11.4bn but Pope, in a broadside at Washington’s policy on biofuels, admitted he remains “very concerned” about the increasing cost of grain.
“I believe these increases, at least in part, can be traced directly back to the ‘corn to ethanol’ policy in this country,” Pope said. “While no one can determine precisely the exact impact of this policy, I think it is clear that the impact on corn prices has been substantial. The elimination of 25% or more of the supply of any commodity from the market, while demand remains constant, has a dramatic impact on price levels.”
