Smithfield Foods Inc. reported a 61% drop in fiscal second-quarter net income, as the company was hit by weaker hog prices and a charge associated with disease at Romanian hog farms, despite strong gains in the processed-meats business.

For the quarter ended Oct. 28, the Smithfield, Va.-based processor of fresh pork, beef and prepackaged meats posted net income of $17.4 million, or 13 cents a share, down from $44.7 million, or 40 cents a share, a year earlier.

The latest period's results include a $13 million after-tax charge due to the outbreak of classical swine fever at three of Smithfield's hog farms in Romania, and an after-tax loss of $25 million related to foreign currency fluctuations.

Smithfield's total sales increased 23% to $3.46 billion, from $2.81 billion, largely due to Smithfield's recent acquisitions, including that of Premium Standard Farms Inc. in May.

The mean estimate of analysts polled by Thomson Financial projected, on average, per-share earnings of 21 cents, on $3.28 billion in revenue. Gross margin was 8.4%, compared to 9.4%.

Hog production earnings fell 76%, due to lower live hog market prices and considerably higher raising costs. Live hog market prices averaged $46 per hundredweight versus $50 per hundredweight a year ago. Raising costs rose to $49 per hundredweight from $41 per hundredweight last year on higher grain costs.

"The decline in earnings this quarter was almost entirely in the hog production segment, as most of our other businesses performed well," said President and Chief Executive C. Larry Pope. "Unquestionably, the highlight of the quarter was the dramatic improvement in packaged meats margins due to an improved product mix and our continuing effort to drive out costs."

Earnings for the company's pork segment nearly tripled, reflecting expansion in packaged meats margins, a much-improved fresh pork environment late in the quarter and the contribution of Premium Standard Farms. Packaged meats profit margins more than doubled. Total volume of key packaged meats categories grew 37%, primarily the result of the contribution of Armour-Eckrich, acquired in October 2006.

The beef segment's earnings were down 53% as cattle-feeding operations recorded a modest profit that could not offset high feed costs and cattle prices.

In the company's "Other" segment, which includes its joint venture turkey operation, Butterball LLC, earnings were up 5%, as increased feed costs at the company's growing operations partially offset strong gains in turkey processing.

The U.S Agriculture Department reported that U.S. inventory as of Sept. 1 for all hogs and pigs rose 3% from the same time last year. Rising hog supply is hurting live hog prices, which slipped 20% from August to October. Analysts have said hog prices may improve if China purchases more U.S.-made pork.

There was speculation last Monday of a new pork deal between Smithfield and China, but the company's spokesman said there is no new deal. Smithfield is still shipping product to China from a deal made earlier in the fall, though it is nearing the completion of shipments for that sale.

Smithfield is now the nation's largest player in turkeys after taking on the Butterball turkey division last fall. But its acquisitions have put the company deep in debt, and its interest costs have doubled in the past four years.

Looking ahead, Mr. Pope projected near-term losses in hog production, but an improving environment moving into the fiscal fourth quarter and beginning of fiscal-year 2009. He also expects continued strong performance in the packaged-meats business.

The mean estimates of analysts polled by Thomson Financial were for per-share earnings of 26 cents on $3.61 billion in revenue for the fiscal third quarter, and per-share earnings of $1.30 on $13.59 billion in revenue for the fiscal year.

Smithfield shares closed Wednesday at $28.18. There was no premarket activity.