Next year, Esskay, the area's second largest producer of pork products, will celebrate its 125th year in business.

While its most recent financial figures are encouraging, the firm has not fully recovered from its poor performance in 1980 and 1981.

"We had been losing money for a couple of years," said Esskay President Joseph Kershaw, "but last year we lost in large amounts. And we had to do something about it."

First, Esskay hired a consultant with extensive experience in the meat business. "This is a very capital-intensive industry with extremely low profit margins on each item," said Albert J. Wilkins Jr., vice president for marketing and sales. "And when costs went way up, items like energy and interest, we were hurt badly," he said. So Wilkins, Kershaw and chairman and chief executive officer William G. Hupfeldt instituted stringent measures to turn things around.

In addition to obtaining wage concessions from its 800 unionized assembly plant workers, the company set out to scrutinize and change its distribution system. "The firm hadn't really changed its way of doing business for 30 years," said Wilkins, "and it got to the point that, in effect, to remain in business here in Baltimore something had to be done."

Workers were laid off, which was agonizing for a management team that had always been paternalistic. No longer would the firm make deliveries to customers with orders of less than 100 pounds; the minimum was raised to 300 pounds, with a surcharge added. Previously, Esskay's deliveries competed with warehousers and jobbers who carried its products. That practice was eliminated. The drop in energy costs, too, has helped Esskay a great deal.

"With Al Wilkins' help and a lot of belt-tightening, we have turned things around," said Hupfeldt, whose great-great grandfather founded the business in 1858. "We even had to consider seriously moving our main plant and corporate headquarters to a city in the Sun Belt. That would have meant that Baltimore would employ only about 50 people, and it would have become only a distribution center."

Esskay's formal corporate name is Schluderberg-Kurdle Co. Esskay resulted from the first letter in each of those family surnames. Today, nonvoting stock in the company is traded over the counter, and Hupfeldt holds a controlling share of the voting stock.

Esskay, with its 800 pork products, is primarily a regional producer, ranking second to the recently merged Gwaltney-Smithfield company. It serves eight states along the eastern seaboard and has 50 percent of the market within Baltimore. In Washington, it sells primarily to Safeway but supplies Giant only with peppered meats: "A long time ago, before any of us joined the firm," said Hupfeldt, a 31-year-veteran at Esskay, "we decided not to go into Giant in order not to offend certain corner grocers. As you see, things don't change too quickly."

Essentially, the company's operations are divided into three divisions: slaughtering, for the sale of fresh meat products; processing, and distribution. Forty percent of its sales in the most recent quarter were in fresh pork products. Another 25 percent were derived from products that it distributes but does not manufacture.

According to Robert L. Walker, Esskay's director of human resources development, 65 to 70 percent of all hogs raised in Maryland end at Esskay's. While hams and hot dogs account for the largest portion of items sold, the firm utilizes the entire hog in making, and selling, by-products. Each week, 2 1/2 to 3 million pounds are produced in the firm's only plant in East Baltimore. From the 2,400 to 3,000 hogs butchered each day, 50,000 hot dogs an hour, or 400,000 a day, are produced. A pound, or 10 hot dogs, sells for $1.69 at the grocery store, the same price as Briggs' beef hot dogs and 44 cents more than eight all-chicken Gwaltney franks.

A one-pound Esskay pork sausage, which is a major item for the firm, sells for $1.49, a dime more than the same size Gwaltney brand. "We think of ourselves as being toward the higher end, the quality end of the line," said Kershaw. Still, Esskay sells this one-pound sausage for 80 cents less than the comparable Bob Evans and Jimmy Dean product.

To survive, and in hopes of a real celebration to mark its 125th year in 1983, Esskay has undertaken stringent measures. For example, key cost areas have been reduced significantly. Over the last year, said Walker, shipping, selling and distributing costs have dropped from an average of 10 1/2 cents per 100 pounds of product to 8 cents. "That 21.7 percent decrease obviously helps a great deal," said Walker.

In 1981, Esskay lost $1.7 million ($18.04 per share) on sales of $118.37 million, compared with 1980 losses of $495,056 ($5.91) on sales of $117.10 million. However, for the quarter ended Jan. 30, 1982, net income was $436,000 ($4.17) on sales of $31.83 million. For the same quarter in 1981, there was a net loss of $498,000 ($5.18) on sales of $31.06 million.

Esskay does not intend to be overly cautious. It realizes that, with Gwaltney-Smithfield's daily hog slaughtering, which is three to five times greater, it will remain the Avis of this region's pork product manufacturer. And that suits Esskay fine. But it still expects to expand into states like Massachusetts, Ohio, Florida and Tennessee.

"We intend to continue making the same high-quality products that we've made for all these years," said Hupfeldt, "so, in that sense, nothing will really change."