Is the jig up for SmithfieldFoods' (NYSE:SFD) big pig gig?

Results for the company's first fiscal quarter weren't especially strong, though they were all right compared with analyst estimates. Sales climbed 11% in the period, though operating profits were essentially flat. A combination of higher interest expense and a larger loss from affiliates left net income lower, and earnings per share declined about 10% from last year.

The sale of pork products, which accounts for nearly two-thirds of the company's total revenue, rose a respectable 5% in this quarter. Although volumes increased in the high single digits, tough pricing cut operating profits by half. In beef, the second-largest revenue contributor, sales and operating profits were up strongly despite weak pricing.

The company's hog production operations were the real key here. Though it only composed about 16% of total revenue, this very profitable business segment produced 103% of the company's reported operating profit in the quarter, vs. 90% last year. Live hog prices dropped about 10% from year-ago levels, but raising costs also dropped about 7%. That's not the ratio you want to see, though; profits would have fallen year over year if hedging costs hadn't hurt the year-ago quarter.

Smithfield Foods has been a healthy performer over the years, but that's no guarantee of ongoing strength. The meat business is highly competitive, with a variety of protein options at the store, and rival pork producers like Hormel (NYSE:HRL) and Tyson (NYSE:TSN) eating into profits. Furthermore, large retailers like Wal-Mart (NYSE:WMT) are using their considerable leverage to pit suppliers against each other for the lowest prices.

Competition isn't what worries me, honestly -- it's not exactly a recent development. I am worried that 2004 was one of the highest years for hog prices in the past decade. With weak chicken and beef prices, and the eventual reintroduction of Canadian beef imports, I'm just not sure why anyone should expect 2005 prices to match last year's. That's not great news for Smithfield.

While the stock looks pretty cheap here on a P/E basis, the free cash flow picture is not nearly so appealing. Patient investors who are willing to ride the ups and downs of a commodity business could still do OK, I suppose. Personally, I'm more interested in the pork chops than the stock.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).