Smithfield Foods suffers widened quarterly loss

Posted Sep 8th 2009 12:40PM by Elizabeth Harrow
Filed under: Earnings Reports, Smithfield Foods (SFD), Options

Pork producer Smithfield Foods (NYSE: SFD) confessed Tuesday morning to a first-quarter loss of $107.7 million, or 75 cents per share, notably worse than its year-ago loss of just $13.2 million, or 10 cents per share. Excluding one-time charges, SFD would have swallowed a loss of 56 cents per share for the recently concluded quarter. Revenue for the period fell by more than 13% to $2.72 billion.

Both figures fell short of analysts' expectations, which called for a loss of 53 cents per share on $2.82 billion in revenue. Thanks to the twin factors of the recession and the still-spreading H1N1 virus -- a.k.a. the "swine flu" -- Chief Executive Larry Pope said, "I feel like the world has been against us for 12 months." (While H1N1 cannot be contracted by consuming pork products, the pork industry has suffered nevertheless by association.)

"The hog production industry will very likely continue to incur losses until an industry-wide liquidation occurs," said Pope in a statement. "We believe the industry has finally reached an inflection point where liquidation must occur." He warned that Smithfield could continue to be unprofitable through the end of the fiscal year, in April 2010.

Despite the company's dismal quarterly results, SFD quickly whittled its early losses, and was trading just fractionally lower at last check. The muted downside reaction is probably due to the fact that so much pessimism is already priced into the shares -- short interest accounts for 20% of the stock's float, and option traders on the International Securities Exchange (ISE) bought to open 1.82 puts for every call during the two weeks preceding the earnings report.

While additional downside may be limited at current levels, SFD's path higher is hardly clear. The $14 level has acted as technical resistance throughout 2009.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Tags: earnings report, first-quarter earnings, H1N1, inthenews, Larry Pope, options, SFD, short sellers, Smithfield Foods, swine flu, technical analysis