EMILY FREDRIX

Associated Press

MILWAUKEE (AP) -- Smithfield Foods Inc. lost money in the second quarter, as continued weak prices in its hog business offset better results in its packaged-meat business.

The nation's largest hog producer and processor has been hurting because of weak demand, first a result of the recession and then worsened by swine-flu fears last spring.

Volatile commodity prices also have squeezed margins. Smithfield has been cutting hog production in an attempt to boost prices.

Company CEO Larry Pope said Thursday that the company planned to cut production further and close more farms to "reach a balance in supply and demand."

So far it has reduced the size of its sow herd by 13 percent, or 130,000 sows. Smithfield said the reductions will result in over 2.2 million fewer hogs annually by fiscal 2011.

Pope said Smithfield expects to return to profitability in the second half of its fiscal year, but the company did not specify its outlook further.

The company, based in Smithfield, Va., lost $26.4 million, or 17 cents per share, for the quarter ended Nov. 1, compared with a profit of $1.7 million, or 1 cent per share last year.

Excluding a higher tax rate and other items, Smithfield lost 26 cents per share, a smaller loss than the 39 cents per share analysts polled by Thomson Reuters, on average, expected.

Sales fell 15 percent to $2.69 billion from $3.15 billion a year ago. Analysts expected revenue of $2.71 billion.

Shares rose 44 cents, or 2.6 percent, to $17.30 in morning trading Thursday.

Sales of fresh pork fell 21 percent to $990.9 million from $1.26 billion a year ago, while operating profit in that segment fell 20 percent.

The company said that pork results were lower than last year but strong on a historical basis. It added that export shipments to China, closed for the fiscal year, are expected to resume, which should help upcoming pork results.

Sales of packaged meats fell 14 percent to $2.24 billion from $2.59 billion. However, operating profit more than tripled on better pricing, lower raw material costs and cost-cutting.

The company has been restructuring, including cutting jobs and closing factories, to focus more on its packaged meat business, which includes brands like Ekrich and Patrick Cudahy. Packaged meats like ham and bacon are more profitable than fresh meat and appeal to consumers who are eating more at home during the recession.

Pope said the company plans to go after this segment of the market more in the coming year and boost consumer awareness of its name to expand this more-profitable part of the business.

"We're now going to focus on having some pull associated with this product," he said. "It's going to take time to do that and in some cases introduce ourselves to the consumer in a much more real way."

Hog production revenue fell 26 percent to $554.9 million.

Pope said the company is ahead of schedule on the restructuring plan and plans to finish it in January.

He said the company expects the plan to deliver $55 million in profit improvement in the 2010 fiscal year, after restructuring expenses. The plan should deliver $125 million of annual benefits going forward.

Copyright 2009 The Associated Press.

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