Smithfield Foods, Inc. reported a loss from continuing operations for the first quarter of fiscal 2009 of $28.5 million, or $.21 per diluted share, versus income from continuing operations of $56.6 million, or $.43 per diluted share last year.

For the first quarter, net income from continuing and discontinued operations was a loss of $12.6 million, or $.09 per diluted share.  Last year’s first quarter net income of $54.6 million, or $.41 per diluted share, includes an after-tax loss from discontinued operations of $2.0 million, or $.02 per share.  Sales were $3.1 billion versus $2.6 billion a year ago.

The current quarter loss from continuing operations includes a negative mark-to-market adjustment of about $20.1 million after-tax, or $.15 per diluted share that are related to unrealized losses on changes in the fair market value of the company’s open commodity derivative contracts, as well as losses related to asset disposals by Campofrio.

"Given the overall adverse environment of the industry, I am pleased with the results of the current quarter," said C. Larry Pope, Smithfield president and chief executive officer.  "Our fresh pork operations and our packaged meats business performed well in the face of sharply rising input costs.  We are continuing to focus on our cost structure and improving plant operating efficiencies. Also, our new management structure is in place and moving forward nicely."

Pork segment operating profits more than doubled from last year’s results, even as live hog costs rose.  These results reflect sharply higher fresh meat profits driven by strong export demand.  In general, the first quarter is the weakest quarter of the year for pork, but this is not the case in the current quarter.  Overall export increased 124 percent over last year, caused by large increases in shipments to China, Russia, Japan, Mexico and the EU. 

Pork prices have risen more significantly in many countries, making U.S. products very competitive.  Fresh pork volume rose 33 percent as the company took advantage of the export opportunities and processed more hogs.  Because higher raw material costs could not be fully passed through in higher prices, packaged meats profits were somewhat weaker. 

"We are pleased by the pending merger of Campofrio and Groupe Smithfield.  The merger clearly creates a European packaged meats powerhouse with the number one share in many major markets," said Mr. Pope.  "This merger also monetizes our investment in the Groupe Smithfield joint venture into a 37 percent share in a publicly-traded company with $3 billion in sales," he said.

The international segment recorded operating profit below last year, as raw material costs moved to higher levels.  Groupe Smithfield continued to experience highly competitive market conditions throughout Europe and recorded a modest loss.  Smithfield’s share of Campofrio’s loss during the quarter was $3.4 million, including $5.5 million related to asset disposals.

Hog production operating losses continued.  Sharply higher feed costs, the result of a 39 percent increase in corn and a 33 percent increase in soybean meal over the same period last year, have been pressuring hog production results for the past nine months, and these operating losses have continued into the current quarter. 

In the Other segment, Butterball, LLC, the company’s joint turkey operation, recorded a loss as higher grain costs increased, raising costs dramatically.  Butterball is evaluating cutbacks in production that will better balance supply and demand.

As previously disclosed, the company has signed a definitive agreement to sell Smithfield Beef Group, Inc., its beef processing and cattle feeding operation, to JBS S.A.  Therefore, the company has classified the results of the beef and cattle feeding operations as discontinued operations.  Results for the prior year have been restated to reflect that representation.

"We continue to be challenged by high input costs across all the businesses.  Certainly a portion of this increase is the result of the current ethanol policy put in place," Mr. Pope said.  "The current government mandate puts the company in a position of having to compete with foreign oil for feed for our livestock.  This mandate has resulted in more than 30 percent of the corn crop being diverted from animal feed to ethanol production, resulting in a sharp run-up in corn prices tied to world markets.  This is a dynamic this industry has never faced."

"However, we continue to pursue our long-term strategy of emphasizing our packaged meats business and improving our fresh meat operations.  This strategy is working and is improving the base of our business," said Mr. Pope.

With sales of $12 billion, Smithfield Foods is the leading processor and marketer of fresh pork and packaged meats in the United States, as well as the largest producer of hogs. For more information, visit www.smithfieldfoods.com.

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