Hormel Foods lowered its annual profit guidance Tuesday, less than a month after affirming that same forecast, as business has since deteriorated in its pork and refrigerated meat division.
Hormel lowered its earnings target from a range of $1.93 to $2.03 per share to between $1.88 and $1.96 per share for its fiscal year 2013, which is a little more than half over. The cut “indicates a significantly softer outlook” for the year’s second half, Jonathan Feeney, a stock analyst at Janney Capital Markets, wrote in a report.
The Austin, Minn.-based company’s shares fell 3.6 percent, down $1.46 at $39.19. It was the stock’s biggest one-day drop in six months, according to Bloomberg News.
“Lower than expected results in our pork operations, higher input costs and softer sales of our retail products in our refrigerated foods segment are the primary reason for the expected shortfall in our second-half results,” CEO Jeffrey Ettinger said in a statement.
The refrigerated foods business includes myriad pork and other meat products, from ham to bacon to lunch meat. Hormel is also a big producer of shelf-stable products like Spam and its namesake chili, which didn’t factor into the profit guidance announcement.
Higher feed costs in Hormel’s turkey and pork businesses hurt the firm during its second quarter, when profits were down 2 percent over a year earlier. Still, Hormel said in May that grain costs — the key ingredient in feed — were moderating.
And Tuesday’s announcement said nothing about the company’s Jennie-O turkey business, which could suggest that its results are in line with expectations, Feeney wrote.
Hormel affirmed its annual profit guidance May 23, when it last released quarterly earnings. “Something has changed for the worse and obviously pretty rapidly,” said Brian Yarbrough, a stock analyst at Edward Jones.
In a news release, Ettinger said “we remain very bullish about our future earnings potential.” But the company declined to further elaborate until its annual investor day next week.
Rob Moskow, a stock analyst at Credit Suisse, said in a research report that Hormel’s profit warning Tuesday was “not a big problem.” Rising hog futures prices, coupled with excess cold storage supplies and weak pork exports, have hurt profit margins in the company’s refrigerated pork business, Moskow wrote.
The weakness is coming from the commodity side of the pork business, not the branded side, Moskow wrote. “We continue to view [Hormel] as one of the best managed companies in the food sector with potential for strong earnings growth in [fiscal year] 2014.”