Jennie-O packs a punch for Hormel

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: May 23, 2012 - 9:22 PM

Robust turkey sales helped the Austin-based foodmaker post a 17 percent gain in earnings that beat analysts' estimates.

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A central Minnesota turkey farm is among those producing turkeys destined for a Jennie-O processing plant.

Photo: Tom Sweeney, Star Tribune

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Boosted by a bang-up performance in its Jennie-O turkey business, Hormel Foods Corp. reported second-quarter profits Wednesday that jumped 17 percent and blew through Wall Street forecasts.

Austin, Minn.-based Hormel's strong quarter shone through a fog of mediocre results in the packaged food industry of late. And Jennie-O continued surging on the success of its branded products -- from ground turkey to patties to sausages -- which pack higher profits than non-branded turkey meat.

"Hormel does a fabulous job in adding value to what pretty much is a commodity type of business," said Matt Arnold, a stock analyst at Edward Jones. "They bring a lot to the [turkey] category in terms of innovation."

Hormel said it earned $127.9 million, or 48 cents a share. Stock analysts polled by Thomson Reuters were expecting 42 cents per share on average.

Hormel's sales increased 3 percent to $2.01 billion, a bit shy of analysts' estimates of $2.05 billion. The company's stock closed Wednesday at $29.51, up 32 cents or 1.1 percent.

Hormel Chief Executive Jeffrey Ettinger, in a conference call with stock analysts, credited the company's "balanced business model" for the strong quarter. Normally, the majority of Hormel's five business units are on an upswing vs. a downswing. That was the case again this past quarter, with profits growing at four of five segments.

Jennie-O posted a 50 percent increase in operating profits and a 7 percent increase in dollar sales. Turkey accounted for 35 percent of the company's operating profits during the quarter, but only 20 percent of its net sales.

Not only have Jennie-O sales been on a tear for several quarters, the company has been making its turkey operation more efficient. "They've been taking a lot of costs out," said Ken Perkins, a stock analyst at Morningstar.

Ettinger, while noting that turkey's future is bright, cautioned analysts that the segment's current profit momentum is out of the ordinary. "The run of gains at Jennie-O Turkey store has lasted longer than I originally anticipated," he said.

Turkey feed costs are rising, and markets for commodity or non-branded turkey, which Hormel also produces, have gone down somewhat, he said.

Hormel's grocery products business, which includes Spam and canned chili, had a 10 percent gain in operating profits on a 1 percent sales increase. Spam benefited from an ad campaign featuring a new animated character, Sir Can-A-Lot, Ettinger said.

However, the third of Hormel's three biggest business segments, refrigerated foods, saw a 25 percent decline in quarterly operating profits compared with a year ago. The culprit: high hog prices coupled with weakening U.S. demand for finished pork products, company executives said.

Hormel posted a strong quarter despite higher commodity costs that have hurt profits at other foodmakers. General Mills, based in Golden Valley, said Tuesday it would lay off 850 workers worldwide, about half of them in Minnesota, partly because of rising costs of ingredients.

The packaged food business' weakness could be glimpsed in Hormel's sales volume as measured in pounds, which was down 2 percent compared with a year earlier.

Throughout the food industry, sales have increased largely due to price increases. But pound volume has declined as consumers have increasingly resisted those price increases.

Mike Hughlett • 612-673-4113

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