Smithfield makes offer to buy all of Butterball

Smithfield Foods Inc. said Thursday that it has offered $200 million to buy out its partner in the Butterball LLC turkey business.

Smithfield owns 49 percent and Maxwell Farms Inc. 51 percent of Butterball. The turkey company needs greater investment and a new marketing campaign, said C. Larry Pope, Smithfield's president and CEO.

Maxwell Farms has until September to decide, he said. If the offer is rejected, Pope said, Smithfield will sell its stake in Butterball.

"We have been unhappy with the margins we have achieved in that end of the business," Pope said. "The ownership structure is a significant part of the problem. We want in or out."

The announcement came during the company's quarterly earnings report.

The pork processor and producer said it lost $4.6 million, or 3 cents per share, in the fourth quarter of its fiscal year, ended May 2. That compared with a loss of $81.2 million, or 57 cents a share, in the period a year ago.

Setting aside one-time costs, the Smithfield-based company would have earned 18 cents per share in the fourth quarter of fiscal 2010, said Robert W. "Bo" Manly IV, the chief operating officer.

Smithfield's shares fell $1.17 each - 6.7 percent - in trading Thursday to close at $16.35 a share. Smithfield executives said the results show that the company has rebounded from its slump.

"We've come through a long dark tunnel over the last two years, and the light is getting very bright," Manly said during a conference call with analysts.

Smithfield had recorded four straight quarterly losses before reporting in March a $37.3 million profit in the third quarter.

Smithfield's sales for the fourth quarter totaled $2.9 billion, up 2 percent from the same period last year. For fiscal 2010, sales were $11.2 billion, down 10 percent from 2009. In the fiscal year, the company lost $101.4 million, or 65 cents per share. That was much less than its loss in 2009 - $198.4 million, or $1.78 per share.

Smithfield's hog-production sector, which has suffered from high feed costs and low selling prices, lost $75.8 million in the fourth quarter, compared with a $170.8 million loss a year earlier. But, Pope said, "The hog market has turned" and will be profitable in fiscal 2011.

To boost that segment, Manly and Pope announced a new "hog cost improvement initiative" but provided few details. Pope said it would cost about $90 million and ultimately would save $75 million to $100 million a year, while improving "the quality of the animals."

Pope also said Smithfield would limit its hedging operations in response to investor and shareholder concerns, though "we think we probably are leaving money on the table.... Our ultimate goal is to be transparent to our shareholders."

Steven Marascia, research director for Capitol Securities outside Richmond, said Smithfield offered "a mixed bag of results." He said he was encouraged by the $200 million offer for the remainder of Butterball.

"It's comforting, given what the position of the credit markets was a year and a half ago and the major concerns investors had about Smithfield's credit situation in 2008 and 2009," Marascia said. "They've got the cash position or they feel they can borrow to fund the acquisition."