DATE: Tuesday, September 2, 1997            TAG: 9709020118

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY AKWELI PARKER STAFF WRITER 

                                            LENGTH:  102 lines

"A BUMP IN THE ROAD THE COMPANY'S OPTIMISM, LIKE ITS STOCK, HASN'T FALTERED AFTER FINE.

When Vincent Boslego was getting ready to move from Pennsylvania to Virginia a year ago, he decided to support his new state's economy by picking up some local stocks.

Not only did Norfolk-based Smithfield Foods Inc. claim an enviable growth record for two decades, but it also happened to be headquartered in Boslego's soon-to-be adopted city.

``They've done tremendously in the past 20 years,'' explained Boslego, a retired government worker and Smithfield Foods investor who attended the company's annual meeting last week in Norfolk.

A thousand dollars that was invested in Smithfield stock in 1975 would be worth $387,000 today, according to the company's annual report. But even as the hog processor has trotted with the bulls along Wall Street, it has had to slog through messy environmental problems and lawsuits.

Most recently, Smithfield was found liable for nearly 7,000 violations of the Clean Water Act as a result of dumping hog waste into the Pagan River. U.S. District Court Judge Rebecca Beach Smith on Aug. 8 levied a $12.6 million fine against the company after it was sued by the Environmental Protection Agency.

Although the fine caused Smithfield to lose $6.54 million in its first quarter, the company predicts the ``extraordinary item'' will slide right off long-term earnings.

``Bottom line is, I view it as a bump in the road that isn't going to have a substantial effect on our company,'' Joseph W. Luter III, company chairman and chief executive officer, told shareholders.

Smithfield's Teflon-like stock has more than doubled in the past year and continued to climb after Smith's ruling, closing at $55.125 Friday, within sight of its 52-week high of $60.125. Last Thursday the company announced a 2-for-1 stock split.

Several securities firms have upgraded Smithfield's stock rating in the last few weeks.

With the meatpacking industry abuzz with E. coli concerns and fewer cattle coming to market due to the cyclical nature of the business, beef prices are likely to rise in the near future, said George F. Shipp, an analyst with the securities firm of Scott & Stringfellow in Norfolk.

Analysts say that should mean good news and higher earnings for Smithfield and other pork processors, who expect hog supplies to increase - and for pork to become more attractive to consumers as its price drops.

The company isn't out of the woods yet.

``Clearly there have been mistakes for which they should pay a price,'' Shipp said, ``and there's going to be an ongoing cost with the environmental concerns.''

Smithfield Foods still must face the state in court for record-keeping violations. The state dropped a similar case earlier this year after tripping on a technicality.

The company has spent $3 million to upgrade its sewage system and will spend ``several million dollars'' annually to pipe waste to the Hampton Roads Sanitation District's treatment facility in Suffolk, according to the company's 8-K filing with the Securities and Exchange Commission.

Before the hookup early last month, hog waste from the company's Isle of Wight County slaughterhouses was dumped into the Pagan River.

Luter turned the annual meeting into a bully pulpit to rail against the fine, which he characterized as the machinations of a vindictive federal government.

Repeating Smithfield Foods' argument during its federal trial, Luter said an agreement with the state in 1991 granted the company leeway in complying with environmental regulations while it was preparing to hook up to HRSD's sewage treatment plant.

Between 1991 and the filing of the EPA's lawsuit last December, Smithfield claims, it didn't hear a peep of disapproval from federal regulators.

Luter harangued the EPA and Judge Smith for what some industry observers say has been a game of political brinkmanship between the feds and the administration of Gov. George F. Allen.

Environmentalist groups and the EPA have accused the administration of handling polluters with kid gloves for the sake of appeasing Virginia's business community.

Virginia Secretary of Natural Resources Becky Norton Dunlop told a U.S. Senate committee in June that the EPA enforced environmental laws with an iron fist instead of working with violators to fix their problems.

Luter's protests found a receptive audience among shareholders - who for the past year have seen their company's stock outpace that of the rest of the pork-packing industry, which has been slammed by high prices for hogs and feed.

Barring the issue of waste-dumping, investors ``have not had much to complain about,'' said Kenneth M. Gassman, a stock analyst with Richmond securities firm Davenport & Co.

Investor Reese Smith of Virginia Beach said he believes the fine was a political potshot.

``It's a great company,'' Smith said, ``and they were raped by the EPA.''

``I'm sure they're trying to do their best,'' said shareholder Boslego, when asked about the company's environmental woes.

Besides, said Boslego - a self-described consumer of Smithfield's porcine product line - ``their growth was unbelievable.'' ILLUSTRATION: Color Photos

TAMARA VONINSKI/The Virginian-Pilot

A statue of a pig guards the entrance of the Smithfield Packing Co.

in Smithfield. At the company's annual meeting last week in Norfolk,

CEO Joseph W. Luter III addressed short-term losses from a $12.6

million fine.

Smithfield Chairman and CEO Joseph W. Luter III KEYWORDS: SMITHFIELD FOODS

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