Pork producer Smithfield Foods said Thursday that third-quarter profits fell about 10 percent on lower live hog prices and higher raising costs, but the results beat expectations handily.

The nation’s largest hog producer and pork processor also forecast a difficult fourth quarter.

“We are in an environment where raising hogs is not profitable,” said CEO C. Larry Pope, president and chief executive officer, citing grain costs.

Net income dropped to $54.6 million, or 41 cents per share, for the three months ended Jan. 27, from $60.4 million, or 54 cents per share in the same quarter a year ago.

The company earned 44 cents per share excluding discontinued operations.

Thomson Financial said analysts expected earnings of 21 cents per share.

Smithfield shares rose 3.5 percent, or 91 cents, to $26.95 in midday trading.

The company said the acquisition of a smaller rival helped its pork segment but that its estimated effective tax rate increased significantly, drawing off about 6 cents in per-share earnings.

The Smithfield-based company also reported its revenue rose 16 percent to $3.79 billion, from $3.28 billion. Analysts had predicted $3.63 billion.

In addition to pork, Smithfield sells beef and turkey and makes bacon, sausage, hot dogs and luncheon meats.

Profits of the pork segment more than doubled because of Smithfield’s acquisition of Premium Standard Farms in May, lower raw material costs, significant growth in exports and substantial improvement in packaged meats margins, the company said.

Precooked product categories continued to grow, with several lines showing double-digit growth, including precooked bacon, sausage, ribs and entrees.

“We continue to focus on convenience-oriented products,” Pope told Wall Street analysts during a conference call.

He also said Smithfield had a good ham holiday season.

Overall, beef segment results increased more than $11 million while hog production operations lost $81 million _ compared with a $4.5 million profit in the same quarter a year ago _ because of lower hog prices and higher raising costs.

Due to the difficult economic environment, Smithfield announced last week that it was reducing its U.S. sow herd by 4 percent to 5 percent, or 40,000 to 50,000 sows. That means 800,000 to 1 million fewer market hogs annually, the company said. Smithfield currently raises 18 million market hogs a year.

Grain prices have soared in the past year, driven by world demand for wheat, corn, oats and soybeans to feed people and livestock. Crops have been battered by weather around globe.

Pope said the industry cannot continue to absorb cost increases without raising prices.

Pope said pork exports should to continue to grow, however.

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On the Net:

Smithfield Foods: http://www.smithfieldfoods.com

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AP Business Writer Lauren Shepherd in New York contributed to this report