US meat processor Smithfield Foods has reported higher second-quarter earnings, as higher hog prices offset lower pork margins and a loss in its beef operations.

The company reported net income of US$58.4m, or 52 cents per share, for the second quarter to 31 October, compared to $36.2m, or 33 cents per share, for the year-ago period. Sales rose to $2.7bn from $2.1bn a year earlier.

Smithfield Foods said earnings in the quarter reflected sharply improved results from hog production due to a 36% increase in live hog market prices year on year. Hog production earnings more than offset lower pork margins and a modest loss in the beef segment.

Pork prices increased significantly from the prior year, reflecting strong demand both domestically and internationally. However, the company said that while pork prices have increased, these prices have not been sufficient to fully recover the increased raw material costs.

"The second quarter was very strong," said Joseph W. Luter, III, chairman and chief executive officer. "The demand for pork, particularly exports, has been excellent. This demand has fuelled strong live hog prices that have reached near-record levels for this time of the year. In this environment, our vertical integration strategy is paying big dividends. Adding back the reduction in earnings from the commodity futures contracts, Smithfield has just had its two strongest quarters ever, even though we had no profits in our beef business," he said.

"Looking forward, I am extremely optimistic about the remainder of fiscal 2005…The futures markets indicate that hog production profitability should be strong for the remainder of the fiscal year. We are moving into the third quarter, which is, traditionally, our best quarter on the pork processing side and, while this year seems to be different from tradition, I believe the combination of hog production and pork processing will result in a very good third quarter. I also expect that the fourth quarter will be strong. I am very confident that we are on track for another record year," said Luter.