Smithfield Foods (NYSE:SFD), the number one pork producer and major meat producer, reported fourth-quarter and full-year losses in its earnings report last week. Major food producers have found the going tough in the last year, with a series of negative factors that have offset the traditional continuing recessionary demand for food and food products by consumers.
For the full year, Smithfield's losses amounted to $190.3 million, or a negative $1.35 per share, versus positive earnings of $128.9 million or 96 cents a share a year earlier. Fourth-quarter numbers were in a similar direction: a loss of $78 million, or negative 55 cents per share, compared to a profit of $2.4 million or 2 cents per share from the previous year, same quarter. The full year numbers are despite sales increasing $1.1 billion or 10%, as surging prices in grain feed were cited by the company as the major problem. ( Learn how hedging with futures can protect those who buy and sell commodities from adverse price movements, see Grow Your Finances In The Grain Markets.)
Other major food producers felt the impact of the skyrocketing feed grain prices, too. Tyson Foods (NYSE:TSN), the world's largest chicken producer, is having a difficult time with earnings. The company is addressing its debt issues by raising capital. In Smithfield's case, the country's shift in ethanol policy, which is diverting grain-based feed corn away from hog producers towards bio-fuel production, concerns the company long-term, and was a factor in its sobering outlook for the remainder of 2009 and 2010.
Other food producers have been able to fight through the recession, and commodity cost issues more positively. Hormel Foods (NYSE:HRL), makers of such products as Dinty-Moore beef stew and Spam, were still able to post profits. Hormel is aggressively promoting Spam as a recession food, but has also sought to strengthen its global presence recently with a deal in Mexico.
Kraft (NYSE:KFT), also profitable, is pushing harder into China, and has its extremely diverse range of food products, so it is not dependent on hog raising, as much of Smithfield's business is. Likewise, Hormel has many beef products, and is not as pork-centric as Smithfield. Add Dean Foods (NYSE:DF) to this list, which has purchased Belgian soy producer Alpro to help address its feed costs and also remains profitable. None of the food producers, however, are showing great earnings increases and will likely be happy to get through the recession showing positive numbers.
The sobering outlook for the company's business is appropriate, in light of its dependence on hog raising due to its strong concentration on pork production. With no immediate relief in sight for the feed grain supply costs, this will continue to impact the company's bottom line. Smithfield will have to continue to struggle against this, while hoping that demand for pork products continues to grow, as reflected in its sales growth, while the company will also have to try to trim costs in other areas until it figures out a way to solve the feed grain cost crisis, or until corn commodity prices moderate on their own. Until then, it would be difficult to recommend purchasing the stock. (Each month can bring new growth opportunities, if you know where the right investment seeds are Investing Seasonally In The Corn Market.)