This winter’s bitter cold has bitten Hormel Foods Corp.’s Jennie-O turkey business, pushing up costs to keep birds warm and crimping output.
The extreme cold led to a decline in live bird production, Austin, Minn.-based Hormel said Thursday. Meanwhile, a propane shortfall sparked sky-high prices for the fuel, which is used to heat turkey barns.
“We got into a mode in January where we were a little concerned we would even get propane,” Hormel CEO Jeffrey Ettinger told analysts in a conference call.
Wholesale propane prices in Minnesota, which had been $1.55 per gallon last fall, were nearly $5 a gallon in late January. Hormel’s turkey operations are in Minnesota and Wisconsin.
Even a full tank of propane can’t fully fend off a sustained deep freeze. Strong winds can play havoc with heat distribution in turkey barns. Turkeys tend not to eat as much then, and more of what they eat goes to keeping warm.
The ugly weather led to considerably lower-than-expected Jennie-O profits during Hormel’s first quarter, which ended Jan. 26. Ettinger said propane costs will continue into the next two quarters, too, impacting Hormel’s overall raw material costs.
Minnesota is the nation’s largest turkey-producing state, and Hormel is one of the country’s top producers of turkey products.
Still, Hormel makes plenty of other foods, from fresh ham to canned chili, and on Thursday it reported a 19 percent increase in fiscal first-quarter profits over the same period a year ago. The purchase of Skippy peanut butter last year helped anchor that increase.
Hormel posted quarterly profits of $153.3 million, or 57 cents per share, up 19 percent from $129.7 million, or 48 cents per share, a year ago. Stock analysts polled by Thomson Reuters were expecting earnings per share of one penny higher.
Hormel’s sales tallied $2.2 billion for the quarter, up 6 percent over the same time a year ago. Analysts had forecast $2.25 billion in sales.
“It was kind of a ho-hum quarter,” said Brian Yarbrough, a stock analyst at Edward Jones. “There were some good things and some worse-than expected things.”
Hormel’s pork business was one of the positive areas. Pork products are a big part of the company’s refrigerated foods division — Hormel’s largest business unit — and it posted strong first-quarter results. Earnings were up 59 percent over a year ago, as pork profit margins increased while bacon demand was strong. Sales for that unit were up 6 percent.
However, Ettinger noted to analysts that a virus sweeping through the nation’s hog farms could lead to tighter raw material supplies during the summer months. Porcine epidemic diarrhea virus (PEDv) kills piglets at an alarming rate, though it has no human health effects.
Despite raw material price pressure from both PEDv and propane costs, Hormel reaffirmed its profit guidance for its fiscal year. The company’s stock closed at $46.19, up 88 cents or almost 2 percent.
Hormel’s grocery products division, which includes Spam and other shelf-stable products, posted a 13 percent increase in operating profit and a 20 percent sales increase, anchored in the addition of Skippy. However, excluding Skippy, grocery sales were down 2 percent.