UPDATE 2-Smithfield sees pressure from costs in 4th qtr

* Sees fresh pork, packaged meats sectors hit by costs

* Spike in hog futures produced hedging losses

* Shares rise on bullish 2011 outlook
(Recasts first sentence, adds analyst comment, share price)

By Bob Burgdorfer

CHICAGO, April 21 (BestGrowthStock) – Hog and pork producer
Smithfield Foods Inc (SFD.N: ) said on Wednesday it expects solid
fourth-quarter results in its meat segment, even though higher
raw material costs will affect margins, while hedging losses
will hurt its hog unit results.

Smithfield shares edged higher as the company issued a
“favorable outlook” for its hog segment in fiscal 2011.

The world’s largest hog and pork producer issued the
outlook for its fiscal quarter that runs through April, prior
to meetings with investors on Wednesday and Thursday in
Boston.

“These losses are the result of the sizable and unexpected
run-up in the futures curve for lean hogs for the summer and
fall months of 2010,” the company said of its hog segment.

Hog futures at the Chicago Mercantile Exchange have sped
higher in April and are now the highest since August 2008,
largely due to a government report in late March that showed a
smaller-than-expected hog herd.

Smithfield, like many hog producers, uses futures to hedge
hog sales. If futures rise too quickly, as they did this year,
the higher cost of exiting, or buying back, those hedges can
affect earnings.

“The ballgame changed with USDA’s end-of-March quarterly
supply report. Instead of supplies being 2 percent under last
year for this summer, they will now be 4 percent lower,” said
Rich Nelson, analyst with Allendale Inc.

“That, along with pork exports, has caused a dramatic price
rally,” said Nelson.

U.S. hog producers including Smithfield aggressively
reduced herds beginning in 2009 after suffering nearly two
years of losses. In late March, USDA reported the U.S. hog herd
as of March 1 was down 3 percent from a year earlier, while
analysts had expected a 2 percent decline.

In addition, the report showed there would be 4 percent
fewer hogs this summer.

“We continue to believe that Smithfield’s efforts to
improve its pork operations, restructure its hog business, and
deleverage its balance sheet are the right courses of action,”
Kenneth Zaslow, BMO Capital Markets analyst, said in a note
following Smithfield’s announcement.

Smithfield is scheduled to report fourth-quarter earnings
on June 17.

Smithfield shares were up 0.5 percent at $20.78 on the New
York Stock Exchange on Thursday morning, off an earlier high at
$20.96.

Investment Tools

(Reporting by Brad Dorfman and Bob Burgdorfer, editing by Dave
Zimmerman and Matthew Lewis)

UPDATE 2-Smithfield sees pressure from costs in 4th qtr