Hormel Foods Corp. reported first-quarter profit Thursday in line with last year and Wall Street expectations, as strong sales of Spam, chili and other dry grocery staples were offset by weakness in the company’s Jennie-O turkey business.
While softness in its turkey and pork businesses could continue because of high grain costs, Hormel still raised its full-year earnings guidance to $1.93 to $2.03 per share from $1.90 to $2 per share. Morningstar analyst Ken Perkins wrote in a research note that he wouldn’t be surprised if Hormel’s earnings ended up at the high end of that new forecast.
“Despite facing considerable commodity cost pressures, Hormel continues to benefit from a solid brand portfolio of convenient, value-added products,” Perkins wrote.
Austin, Minn.-based Hormel’s stock closed Thursday at $36.51, up 39 cents or 1 percent.
The packaged food and meat company reported net earnings of $129.7 million, or 48 cents per share, compared with $128.4 million, or 48 cents per share, a year ago. Stock analysts polled by Thomson Reuters were, on average, looking for 48 cents per share.
Hormel’s first-quarter sales tallied $2.1 billion, up 4 percent over a year ago and in line with analysts’ estimates. “We continue to generate solid top-line momentum with many of our franchises, as our broad portfolio of value-added products resonates with consumers,” Hormel CEO Jeffrey Ettinger said in a news release.
Jennie-O sales rose 3 percent, but first-quarter operating profit sank 23 percent, pummeled by the high cost of grain — the key element in turkey feed — and weaker prices for non-branded or “commodity” turkey.
“We believe turkey and pork margins, coming off a lengthy period of elevated profitability, are likely to remain under pressure due to grain inflation and soft pricing,” wrote Jonathan Feeney, a Janney Capital Markets analyst.
Ettinger told analysts in a conference call that Jennie-O, which has had a great run in recent quarters, “is still delivering excellent operating results.” Jennie-O comprises 18 percent of Hormel’s sales, but 29 percent of operating profit.
Hormel’s grocery products division, which includes Spam and Hormel chili and Mary Kitchen hash, experienced a 13 percent boost in operating profit during the quarter, while sales grew 24 percent. The grocery division makes up 16 percent of sales and 25 percent of operating profit.
Hormel’s refrigerated foods division, its largest segment and home to fresh pork and other meats, had profit in line with last year and saw a 2 percent decline in revenue. The refrigerated division has seen weaker pork processing margins than anticipated, Ettinger said, “though we do expect the balance to eventually return.”
Strongly profitable quarters were also in order at Hormel’s smaller international operation and its specialty foods division, which includes ingredients for other foodmakers and private-label canned meats.