* Shares hit highest level since June; up 2 pct midday (Revises first sentence, adds company comments, updates shareprice)

By Bob Burgdorfer

CHICAGO (Reuters) - Pork producer Smithfield FoodsInc posted a quarterly profit, compared with ayear-earlier loss, as prices rose for the hogs it raises andthe pork it sells under such brands as Armour and Eckrich.

The company also forecast good results going forwardWednesday as it reaps the benefits of industry productioncutbacks, which have boosted prices.

The earnings matched Wall Street expectations, though sales fell short of analysts' forecasts. Shares were up 2percent at midday after rising as much as 5 percent earlier.

Smithfield raises most of the hogs that it processes intobacon, ham, pork chops and other cuts. Like its rivals,Smithfield reduced its herd this past year after sustaininglosses the previous two years.

The smaller herds, coupled with strong pork exports, haveincreased sale prices and made hogs and pork profitable again.

The Smithfield, Virginia-based company reported a profit of$76.3 million, or 46 cents per share, for the fiscal firstquarter ended Aug. 1, compared with a year-earlier loss of$107.7 million, or 75 cents a share.

Revenue was $2.90 billion, up from $2.72 billion a yearago. Wall Street analysts on average had expected $3.07billion, according to Thomson Reuters I/B/E/S.

Year-earlier results were hurt by low hog prices and a dropin pork sales due to fears then about the H1N1 flu, commonlyknown as swine flu.

Rich Nelson, analyst with Allendale Inc, said thefirst-quarter results "should set the general trend for profitsover the next two to three quarters."

Pork margins could narrow in the first half of calendar2011 because of expected higher hog prices then, he said.

Smithfield's pork unit, its largest, posted a 12 percentincrease in profit to $113.3 million, while sales rose 7.2percent to $2.41 billion. The hog unit earned $63.8 million onsales of $648.3 million versus a year-earlier loss of $180.2million on sales of $476.4 million.

"The business environment was very favorable in the porksegment and sharply improved in the hog production segment inthe first quarter," CEO C. Larry Pope said in a statement.

"The hog production segment should continue to beprofitable, supported by lower hog supplies," he said.

During a conference call with analysts, Pope said itappears Smithfield will sell its 49 percent share in theButterball turkey operation, with a decision expected thismonth.

In June, Smithfield offered to either buy out itsjoint-venture Butterball partner, Maxwell Farms Inc, for about$200 million, or sell its 49 percent stake to Maxwell.

The company said it repurchased more than $52 million indebt during the quarter.

Smithfield shares reached $17.15 at the New York StockExchange on Wednesday, the highest level since June, beforeslipping back $16.63, up 33 cents or 2 percent. (Reporting by Bob Burgdorfer; additional reporting by MihirDalal in Bangalore; editing by Vinu Pilakkott, John Wallace andMatthew Lewis)