UPDATE 3-Smithfield Foods loss shrinks, see profits

* Loss 17 cents a share; Street view loss 39 cents

* Rev $2.69 billion vs $3.15 billion

* Normal hog profits still years away (Adds CEO and analyst comments, byline, share price)

By Bob Burgdorfer

CHICAGO, Dec 10 (Reuters) - U.S. hog and pork producer Smithfield Foods Inc (SFD.N) reported a smaller-than-expected second-quarter loss on Thursday, as better profits from its packaged meat business partially offset losses on the hogs it raises and sells.

While the company is forecasting a profitable second half of its fiscal year, due in part to better hog sector results, shares turned lower, as the company said on a conference call that it might be several years before hog profits are normal.

"I am sure that played a key role" for the drop in shares, Akshay Jagdale, analyst at KeyBanc Capital Markets, said of the hog profit forecast.

Investors also may have been shaken by news that Russia may ban U.S. pork from more plants, including Smithfield's. [ID:nN1051353]

Smithfield's hog production unit, the world's largest, lost $167.3 million in the quarter versus a year-earlier loss of $58 million, as lower average hog prices offset lower production costs.

Smithfield has reduced its sow herd, but Chief Executive Larry Pope said the industry needs to do more, and possibly needs to cut an additional 3 to 5 percent of the herd.

"I believe that 2010, for the hog industry, is going to be a profitable year, but I don't believe it is going to be anywhere near historical levels," Pope told analysts.

RESULTS BEAT ESTIMATES

Smithfield and other hog producers have been losing money on hogs for nearly two years, first due to high feed prices and later because weak meat sales during the recession hurt demand and prices for hogs.

For the fiscal second quarter ended Nov. 1, the Smithfield, Virginia-based company reported a loss of $26.4 million, or 17 cents per share, compared with a year-earlier profit of $1.7 million, or 1 cent per share.

Wall Street analysts, on average, had expected a loss of 39 cents a share, according to Thomson Reuters I/B/E/S/.

The year-ago results included earnings and proceeds from the sale of its beef business. Excluding those items, the company lost $32.5 million or 23 cents per share.

Revenue was $2.69 billion, down from $3.15 billion a year earlier.

PACKAGED MEATS DRIVES RESULTS

"Our packaged meats business continued to deliver record profits in the second quarter. This is the part of the business we have focused on and it is repeatedly delivering superior results," Pope said in a statement.

Smithfield has been focused on increasing production of more profitable packaged meats, such as its Armour, Eckrich and Farmland brands.

Packaged meats earned $131.1 million for the quarter, versus $40.4 million a year earlier. Those profits combined with fresh pork earnings resulted in an operating profit on pork of $173.7 million, versus $93.4 million a year before.

In afternoon trading, Smithfield shares were down 44 cents, or 2.6 percent, at $16.42 on the New York Stock Exchange. (Reporting by Bob Burgdorfer; editing by John Wallace and Gerald E. McCormick)