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Smithfield’s Outlook Improves

Smithfield Foods Inc. said May 13 it should meet its fiscal 2009 fourth-quarter debt covenants and appears to be on track to comply with fiscal 2010 covenants.

It also said pork exports are recovering after being disrupted recently when countries banned the meat as a precaution against the H1N1 strain of flu.

Speaking at the BMO Capital Markets’ Agriculture, Protein, and Fertilizer conference, Smithfield chief executive C. Larry Pope said the company has paid down about $900 million in debt this past year and will pay down more and improve liquidity.

Smithfield raises hogs and produces pork and, like other meat companies, has been hurt by high feed costs and a slowdown in meat sales, particularly to restaurants, due to the recession.

To cope, it has closed plants, restructured operations, pared its hog herd, and negotiated new debt agreements.

There have been concerns about the company’s ability to meet debt covenants, but Pope said the company should be in compliance this fiscal year, which ended in April, and next year.

“We expect to meet all of our covenants. With the projections we have, we expect to be in compliance for all of 2010,” said Pope. “We are working with a number of bankers making sure none of our maturities and none of our banking relationships slip up on us.”

The outbreak of the H1N1 flu, commonly called swine flu, that began in April, hurt pork sales but business is recovering both domestically and in export markets, said Pope.

The flu is spread by humans, not hogs or pork, but many countries still banned pork.

“Pork demand suffered at initial outbreak,” Pope said.

Some countries have lifted the bans on pork and sales to Mexico are recovering, he said.

High feed costs, combined with a slowdown in pork sales due to the recession, produced losses for hog producers throughout 2008 and early in 2009. To cope, Smithfield and other producers reduced herds.

“I think it is possible we will lose money for fiscal 2010 raising hogs. But I believe the meat business is going to be terrific and our international business has improved very nicely,” said Pope.

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