SMITHFIELD, Va. (AP) — Pork producer Smithfield Foods Inc. is expected to report leaner profits when it reports its fiscal second-quarter results Thursday, trimmed by lower prices than a year earlier and higher grain costs.
WHAT TO WATCH FOR: Last year's second quarter makes for a tough comparison. A declining pork supply then, along with booming exports, helped Smithfield firm up its prices.
Analysts want to know if Smithfield was able to raise prices enough to offset higher grain costs during its second quarter this year. While the price of corn and soybeans are not at or near historic peaks as they were at the beginning of the summer, prices are still above historic levels. Feed is the biggest cost for pork producers like Smithfield. The company raises pigs on industrial farms, so its profits get squeezed when feed prices rise higher than pork prices in the grocery store.
A sluggish economy has kept pork producers from raising their prices as quickly as they'd like to offset the expensive grain. But this year has been far kinder to the meat industry than some previous years, when weak pork prices forced them to swallow huge losses from their farming operations.
Late last month Smithfield's competitor Tyson Foods Inc. said it raised pork prices by 13 percent during its most recent quarter.
WHY IT MATTERS: Pork producers like Smithfield are caught in a tug of war with consumers. The companies need higher prices to survive in an environment where corn prices remain permanently high thanks to the U.S. ethanol industry, which uses corn as a raw material.
But if Smithfield tries to raise its prices too quickly, it could end up cutting into its own sales as cash-strapped consumers opt for cheaper meat like chicken.
WHAT'S EXPECTED: Analysts polled by FactSet expect Smithfield Foods to earn adjusted net income of 71 cents per share on revenue of $3.2 billion. The estimates don't include one-time items.
LAST YEAR'S QUARTER: During last year's second quarter, the company reported net income of $143.7 million, or 86 cents per share. Revenue rose 11 percent to almost $3 billion. Adjusted net income was 80 cents per share.