Smithfield Foods offers to buy out Butterball, reports smaller 4Q loss as pork profit rises

Pork processor Smithfield’s 4Q loss below $5M

ST. LOUIS — Smithfield Foods, the nation’s largest pork producer, said its fourth-quarter loss narrowed to $4.6 million, or 3 cents per share, as demand rose and feed prices were relatively low.

The company also says it offered Maxwell Farms Inc. $200 million to buy it out from their joint turkey processing venture, Butterball LLC. And Smithfield announced it will restrain its hedging activity, after bad bets on hog futures cost it $58 million during the fourth quarter.

Excluding one-time events, including tax changes and a mark-to-market adjustment of derivative positions, the company said Thursday it earned 18 cents per share. Analysts polled by Thomson Reuters on average were expecting 16 cents a share on that basis.

The company’s stock fell 82 cents, or nearly 5 percent, to $16.70 at midday.

Smithfield last year reported a fourth-quarter loss of $81 million, or 57 cents per share, when all pork producers were hit hard by high feed costs and fears over the H1N1 virus, popularly known as swine flu.

The company, based in Smithfield, Va., reported revenue of $2.9 billion for the quarter ended May 2, up 2 percent.

Smithfield lost $101.4 million for the fiscal year, or 65 cents a share, down from a loss of $198.4 million, or $1.41 a share, the year before. Sales for the fiscal year were $11.2 billion, down from $12.49 billion the year before.

With feed prices lower and demand strengthening, Chief Executive C. Larry Pope said the company’s pork business is set to improve next year. Hog prices began to steady during the second half of the fiscal year as the number of slaughtered hogs fell 6 percent nationwide.

As supplies tightened, Smithfield’s hog production improved in the fourth quarter, with U.S. live hog market prices rising 23 percent. The company expects the higher prices to continue next year now that slaughterhouse capacity has been cut back.

Pope said analysts have been frustrated with the company’s hedging operations, where it makes bets on future prices for grain and live hogs. Pope said that can be profitable over the long term, but it’s not transparent enough for investors to understand. So now Smithfield will be more conservative and make smaller and fewer hedges, he said.

“We’re leaving money on the table. However, I think the market will understand transparency and will reward us,” Pope said during a conference call with analysts Thursday.

Regarding the Butterball deal with Maxwell, Pope said Smithfield either needs full control of Butterball or to cash out of the venture, in which Smithfield holds a 49 percent stake.

Smithfield has long wanted Maxwell to invest more in Butterball, Pope said. He said Butterball needs to upgrade its facilities, business and marketing.

“It’s been so underinvested in for so many years,” he said. “We’re not prepared to go forward in a mediocre fashion.”

Smithfield set a September deadline for Maxwell Farms to decide whether it will sell its stake in Butterball or buy Smithfield’s. If Smithfield buys out its partner, it will assume $215 million in debt will make significant capital and marketing investments in Butterball, Pope said.