UPDATE: Smithfield 4Q Loss Narrows; Seeks To Buy Rest Of Butterball

Smithfield Foods Inc. (SFD) announced plans Thursday to take control of Butterball or sell out of the largest U.S. turkey processor, citing its "mediocre" performance and the need to spend more on marketing.

The U.S. pork and deli-meat specialist owns 49% of Butterball brand after acquiring the business in 2006 with partner Maxwell Farms Inc. for $325 million.

Smithfield said it had offered Maxwell around $200 million for its controlling stake held by Maxwell Farms, which also has the option to buy out its partner.

A Maxwell representative was not immediately available for comment.

The joint management structure is a significant part of the problem, Smithfield president and CEO Larry Pope said, explaining that the company "wants in or out." Butterball had sales of $700 million last year.

"We believe this is a tremendous household brand that has not been adequately supported," Pope said in a post-earnings conference call.

He said Butterball has been "under-invested in," dating all the way back to the 2006 sale of the business by ConAgra Foods Inc. (CAG).

Smithfield said it expects a decision by September. If it is the seller, it will have exited the business at what it believes is a fair value for the operations, Pope said.

The company's announcement came as it released fourth-quarter earnings, which showed a narrowing loss as operating results in every segment improved. The company was hit by restructuring and hedging losses.

For the quarter ended May 2, Smithfield reported a loss of $4.6 million, or 3 cents a share, compared with a prior-year loss of $81.2 million, or 57 cents a share. Excluding restructuring and derivative valuation charges, Smithfield had an 18-cent profit in the latest quarter while revenue rose 2.1% to $2.91 billion.

Analysts polled by Thomson Reuters had most recently forecast earnings of 16 cents on $2.94 billion in revenue.

Gross margin jumped to 6.1% from 3.9% on cost-containment efforts.

Losses in the hog production segment were down 56%, at $75.8 million, as "finally, the hog production cycle has turned," Pope said. The hog industry has been hammered in recent years by oversupply, and widespread herd liquidation, while not as dramatic as the company wanted, is probably complete, Pope said.

The fourth-quarter results don't fully reflect the recovery in the cash and futures markets for hogs, Pope said.

Amid a $73 million mark-to-market downward adjustment related to hedges in hog futures, Pope announced the company would be curtailing its futures positions and relying on the cash market. With the move the company relinquishes the benefits of protective hedges and is "leaving money at the table," Pope said, but he added that investors should react favorable to improved transparency.

Company officials said the company has benefited from hedging but that "very complex" accounting rules have made it tough to explain apparent losses to investors.

Losses in hog production were also due in part to $9.1 million in charges related to a new hog production cost savings initiative that will not fully benefit the bottom line for four years, Pope said.

Smithfield shares were recently trading at $16.54 per share, down 5.59%.

-By Ian Berry, Of Dow Jones Newswires; 312-750-4072; ian.berry@dowjones.com

(Matt Jarzemsky contributed to this article)

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