High turkey feed costs and low prices for some turkey products gobbled up earnings in Hormel Foods' Jennie-O division, contributing to a middling quarter for the Austin, Minn.-based packaged food company.

Hormel on Thursday reported fiscal second-quarter earnings of $125.5 million, or 46 cents per share, down 2 percent from a year ago. Second-quarter revenue came in at $2.2 billion, up 7 percent over a year ago and in line with average analyst forecasts from Thomson Reuters.

Analysts polled by Thomson Reuters were looking for profits of 49 cents per share, and excluding non­operational items Hormel may have hit that target. But it may have fallen short by at least a penny, too. Some analysts were even scratching their heads over the numbers. Hormel didn't respond to a Star Tribune request for clarification.

"Overall, it was a somewhat low-quality quarter," said Brian Yarbrough, a stock analyst at Edward Jones.

Hormel's stock closed Thursday at $41.26, down $1.14 or 2.7 percent. Yarbrough said the stock's decline might be partly due to the company's so-so performance in light of its relatively high valuation. Hormel's price-to-earnings ratio is around 21, while its historical P/E is about 16, he said.

Profits in Hormel's Jennie-O division took a beating, falling 26 percent over a year ago on a sales decrease of 2 percent. Higher grain prices pushed up turkey feed costs. Meanwhile, increased sales of Jennie-O branded products like ground turkey burgers failed to compensate for lower prices in the commodity or unbranded turkey meat business.

But grain costs have since moderated and prices for commodity turkey cuts are on the mend, brightening Jennie-O's outlook, Hormel CEO Jeffrey Ettinger told analysts in a conference call. "We are looking at improved results in the second half."

Profits for Hormel's refrigerated food business, which includes myriad meat products and prepared foods, were up 3 percent over a year ago on a 2 percent sales decline. Still, the refrigerated business, heavily dependent on pork, suffered from the same issues as the turkey business — higher animal feed costs and lower prices for commodity pork cuts, Ettinger said.

But also like turkey, "we do expect balance to return to this area."

Hormel's grocery products business — home to Spam, Dinty Moore and Hormel chili — did the best of the firm's three major divisions during the quarter, posting a 10 percent profit gain on solid sales increases. "We have really great momentum right now in grocery," Ettinger said.

The company's specialty foods division, producer of ingredients for food and beverage makers, had a strong quarter, but also suffered a significant and unexpected blow. An agreement allowing Hormel to sell Splenda into food service channels will expire June 30.

Splenda, the leading U.S. zero-calorie sweetener, is produced by a partnership of Johnson & Johnson and the British firm Tate & Lyle. "The decision was made that they wanted to bring it back in-house and go their own route," Ettinger said.

Hormel will close a plant in Perrysburg, Ohio, because of the Splenda deal's end.

Specialty foods account for 11 percent of sales and 13 percent of operating profits. Despite the Splenda loss, Hormel retained its full-year earnings guidance range of $1.93 to $2.03 a share. "We expect a strong overall finish to fiscal 2013," Ettinger told analysts.

Mike Hughlett • 612-673-7003