SMITHFIELD, Va. -- Smithfield Foods Inc. reported net income dropped by 13 percent for the second quarter of fiscal 2007 of $44.7 million, or $.40 per diluted share, vs. net income last year of $51.6 million, or $.46 per diluted share -- largely due to conditions in the pork segment.



Last year's second quarter included pretax charges totaling $16.3 million, or $.09 per diluted share, in connection with the restructuring of East Coast pork processing operations. Sales were $2.8 billion, compared with $2.9 billion a year ago.

Results in the pork segment, excluding the charge in last year's second quarter, were down from the same quarter a year ago, principally on lower fresh meat margins. Fresh pork volume was down 7 percent from last year, reflecting lower processing levels resulting from a plant rationalization, a weak fresh meat environment, as well as somewhat reduced livestock availability in the company's east coast pork processing operations.



Packaged meats volumes were up 9 percent, reflecting the impact of the acquisition of the Cook's ham business and the Armour-Eckrich branded meats businesses. The strong sales of branded packaged meats and ready-to-eat products at Cook's and Armour-Eckrich helped produce double-digit growth rates in important product categories, including ready-to-cook bacon, smoked hams, luncheon meats, smoked sausage, dry sausage, pre-cooked entrees and pre-cooked ribs. Excluding acquisitions, packaged meats volumes were down four percent.



Beef segment results increased substantially, reflecting higher margins in cattle raising, both company-owned and through the Five Rivers joint venture. Operating profits of the company's cattle feeding investment swung from a loss of $2.3 million in last year's second quarter to a profit of $4.6 million in the current quarter. Beef processing results also improved significantly.



Hog production operating profits declined significantly as a result of a seven percent lower number of head marketed and higher raising costs. The lower volumes reflect the impact of ongoing health issues in the company's east coast livestock production operations. Raising costs increased from just under $40 per hundredweight in last year's second quarter to over $41 per hundredweight this year on higher grain costs and under-absorbed overhead due to lower volumes. Live hog prices were about the same for both years at $50 per hundredweight versus $49 last year.



The company said that the circovirus issue appears to be contained. Whereas availability of vaccines has been limited in the past, they have become more accessible in recent months. Mortality losses are sharply lower at farms where vaccines have been used.



In the Other segment, operating profit rose at the company's joint venture, Butterball, LLC, the combination of the former Carolina Turkeys, LLC and the recently-acquired Butterball turkey business. The quarter includes one month of contribution of Butterball. The improved turkey results were offset by losses in the company's bioenergy operations.



"The results for the second quarter were solid in spite of generally unfavorable industry conditions, particularly in the pork segment," said C. Larry Pope, Smithfield president and chief executive officer. "Fresh pork and packaged meats margins remained weak even as we entered the Fall period, traditionally the best time of the year. In addition, difficulties in the beef industry persist.



"Substantial attention is being given to the integration of several major acquisitions we have recently completed and to structuring our packaged meats business to be very competitive going forward," Pope said. "We have shuttered underutilized operations, focused on lowering plant overhead costs and invested in new, state-of-the-art plant and equipment. I believe that we are realigning our cost structure within existing operations, as well as newly-acquired operations, that will position us very favorably in the future," he said.



"The recent rise in grain prices will increase growing costs and likely impact margins if they persist," Pope said. "Corn prices, as well as other input costs, will continue to affect live production results. However, this is an industry with very thin margins, both in red and white meat. As such, any significant cost increases will have to be passed through in selling prices relatively quickly to maintain margins.