Pork producer Premium Standard Farms posted net sales increases of 3.4% to US$220.4m for its second quarter, compared to the second quarter of fiscal 2006, positively impacted by a $13.4m improvement in live hog prices and a $2.3m improvement year-over-year related to lean hog futures, the company said.

The revenue gains were partially offset by an $8.5m decrease in production volume, primarily due to the negative impact from health-related issues in the company’s production segment, it said.

Net income for the quarter was $4.3m, or $0.13 per diluted share, compared with a net income of $12.2m, or $0.39 per diluted share for the same period last year. Premium said this included a charge of $1.6m related to the proposed merger with Smithfield Foods and a $7.4m in charges for the settlement of a portion of an outstanding legal case and reserves for other similar cases pending, which combined, after-tax totals approximately $0.18 per diluted share in charges.

“Despite the current operating environment being more difficult than last year, we are pleased to report solid second quarter results. Our overall results were favourably impacted by rising lean hog prices, and we expect hog prices to continue to remain above historic averages for the remainder of this fiscal year. Our export sales for the second quarter were flat versus very strong growth in the second quarter of last year, when we experienced a 55% increase in export volume. However, we saw a marked improvement in sales growth within our food service channel,” said John Meyer, CEO and president of Premium Standard Farms.

“Conversely, our production operations were impacted by health issues across the segment, which reduced production volume by 6.1% year-over-year. We continue to focus on improving health within our production operations and are encouraged by early results of our circovirus vaccination programs currently being implemented. While we expect to see more favourable comparisons in volume toward the end of fiscal 2007 as a result of the improvements made in recent months, we would expect near-term health issues to remain.”

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Net sales for the first six months of fiscal 2007 were $426.6m compared to $458.5m last year at the pork firm, negatively impacted by a $19.8m decrease in production volume combined with a decline in results related to lean hog futures of $12.7m.

Net income in the first six months of fiscal 2007 was $11.9m, or $0.37 per diluted share including charges, compared to net income of $27.6m, or $0.88 per diluted share, in the same period last year.

On 18 September this year, Premium Standard Farms and Smithfield Foods announced their plans to merge. Under the terms of the merger, each share of Premium Standard Farms will be converted into the right to receive 0.678 of a share of Smithfield Foods’ common stock plus $1.25 in cash. The transaction is expected to close in the first quarter of calendar 2007, subject to approval by certain regulatory agencies, the company said.

In its outlook, Premium said that while hog prices have remained steady since late July and are expected to remain above historic averages for the remainder of the fiscal year, the company continues to expect lean hog prices and pork prices at levels lower than previously experienced in fiscal 2006.

As a result, the Company expects net sales and net income in fiscal 2007 to remain at lower levels than the prior year.