Smithfield Foods yesterday (30 November) posted net income for the second quarter of US$44.7m, or $0.40 per diluted share, down from $51.6m, or $0.46 per diluted share, reported for the comparable period of last year. The 13% decline in second quarter earnings was primarily the result of weaker volumes in the fresh pork segment, the world's largest pork processor said.

Meanwhile, sales slipped to $2.81bn, down from $2.87bn a year ago.

"The results for the second quarter were solid in spite of generally unfavourable industry conditions, particularly in the pork segment," said C. Larry Pope, Smithfield president and CEO. "Fresh pork and packaged meats margins remained weak even as we entered the Fall period, traditionally the best time of the year. In addition, difficulties in the beef industry persist."

Smithfield said that profits in the company's pork segment were held back by lower margins on fresh meat, a 7% decline in pork volume and reduced livestock availability.

Overall, packaged meat volumes increased by 9% in the period, boosted by Smithfield's acquisition of the Cook's ham and Armour-Eckrich branded meats businesses. Strong ready-to-eat and packaged meat sales drove double-digit growth in the ready-to-cook bacon, smoked hams, luncheon meats, smoked sausage, dry sausage, pre-cooked entrees and pre-cooked ribs product categories. Excluding acquisitions, however, packaged meats volumes were down 4%.

"Substantial attention is being given to the integration of several major acquisitions we have recently completed and to structuring our packaged meats business to be very competitive going forward," said Pope. "We have shuttered underutilized operations, focused on lowering plant overhead costs and invested in new, state-of-the-art plant and equipment. I believe that we are realigning our cost structure within existing operations, as well as newly-acquired operations, that will position us very favourably in the future," he said.

Smithfield's beef segment results improved substantially, reflecting higher margins in cattle raising and an improved beef processing performance.

Smithfield's international segment also returned to profitability in the quarter, reflecting gains from its recently formed joint venture, Groupe Smithfield, and improved results in Poland. Groupe Smithfield, a 50/50 venture between Smithfield and Oaktree Capital Management, acquired the European meats business of Sara Lee in August.

Looking to the remainder of the year, Smithfield said the recent rise in grain prices will increase costs and could impact margins. "This is an industry with very thin margins, both in red and white meat. As such, any significant cost increases will have to be passed through in selling prices relatively quickly to maintain margins," Pope commented.