Filed Under: ,
Tickers in this Article: SFD, HRL, TSN, FEED
Just because you're in the business of selling food does not automatically insulate you from the recession. This is the reality meat company Smithfield Foods (NYSE:SFD) continues to face as it announced its second-quarter results. For the quarter, the company reported sales of $2.7 billion against $3.1 billion in the same period last year. Earnings per share had a loss of 17 cents versus a loss of 23 cents in the year ago period. This loss is the fourth consecutive quarterly loss for the company.

Eight Ways To Survive A Market Downturn

The Other White Meat
Smithfield's woes are due to the fact that it relies heavily on pork sales. Unlike Tyson Foods (NYSE:TSN) which is not as concentrated in one particular meat, Smithfield derives over 40% of its revenues from the production and sale of fresh pork. The U.S. currently faces an over-supply of hogs which hurts prices.

In addition, Russia continues its ban on U.S. pork imports, citing health reasons while the U.S. feels that politics may be coming into play. The increasingly strict Russian ban affects four new U.S. meat plants, all of which are owned by Smithfield Foods. According to some sources, Russia - the 5th largest export market for U.S. pork - is slowly working towards a complete and permanent ban.

Maybe China?

The Russian ban is certainly not good for Smithfield or Hormel (NYSE:HRL) which also owns plants that have been effected by the ban. Although there have been no links to pork consumption and the swine flu, it certainly has not helped pork consumption. Also, as the price of other substitute meats declines, the demand for pork will also be affected.

While Russia is clearly important, China is by far the world's largest consumer of pork, consuming nearly six times as much as the U.S. does. As Chinese pork producers like AgFeed Industries (Nasdaq:FEED) expand supply to meet China's huge demand for pork, the country still continues to be a net importer of the other white meat. However, it doesn't help that China knows about U.S. pork being banned for health reasons, regardless of the degree of validity those reasons hold. (For more, see 22 Ways To Fight Rising Food Prices.)

The Bottom Line

From the looks of things, it doesn't seem like the domestic pork industry is set to take off in the near future. And with Russia's ban unlikely to go away anytime soon, it may mean even tougher times ahead for Smithfield. (For more, see Learn To Corral The Meat Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center