It was a down quarter for Hormel’s grocery products, including canned chili. Operating profits fell 9 percent.
Seth Perlman, Associated Press
Higher costs, frugal consumers squeeze Hormel; profit down 13%
- Article by: MIKE HUGHLETT
- Star Tribune
- February 23, 2012 - 9:27 PM
Rising ingredient costs have collided with tight shopping budgets to place foodmakers in a difficult place.
Hormel Foods Corp. was the latest to feel the impact, reporting a 13 percent profit decline on Thursday amid slackening sales of some of its canned products. Higher pork costs also took a whack at the company's bottom line.
Austin, Minn.-based Hormel, maker of a host of meat products, posted fiscal first-quarter earnings of $128.4 million, or 48 cents per share. That was in line with the consensus forecast of stock analysts polled by Thomson Reuters, as were quarterly sales of $2.04 billion, up 6 percent from a year earlier.
But it was a down quarter for the company's grocery products segment -- home to Spam, canned chili and other shelf-stable products. Its operating profits fell 9 percent from a year earlier, while sales declined 3 percent.
Higher costs for beef and other raw materials have hurt the business, as did lower sales volume. "We have encountered some sluggishness as consumers adjust to higher prices," Chief Executive Jeffrey Ettinger told analysts in a conference call.
Several major food companies, including Golden Valley-based General Mills Inc., have reported weak sales volume in recent months, and analysts say sticker shock in the grocery aisles has played a role. Packaged food companies have raised prices as their own input costs have soared.
General Mills lowered its profit outlook last week due to flagging sales volume in its U.S. retail business. Hormel's profit guidance remained the same Thursday, and Ettinger noted that some of its key products -- pepperoni, for instance -- have posted strong sales volume.
But at a food industry conference this week, company outlooks were "somewhat muted" given softening sales volume, analyst Alexia Howard wrote in a research note.
"The volume outlook is highly uncertain -- we don't yet whether this is a short-term phenomenon ... or whether there is something more protracted going on," wrote Howard of Sanford C. Bernstein & Co.
Rising ingredient and input costs have also been eating at packaged-food makers, including Hormel.
Its largest segment, refrigerated foods, saw a 44 percent decline in operating profits during the quarter compared with a year ago, though its sales grew 7 percent. Higher hog prices have helped erode the pork business's "cut-out margin" -- the difference between prices paid for hogs and prices received for cuts of meat.
Hormel shares closed Thursday at $28.39, down 65 cents or 2.2 percent.
Matt Arnold, an analyst at Edward Jones, said the stock's pullback seemed overdone given that "there's really nothing here that's out of line with expectations."
Hormel's Jennie-O Turkey Store unit was the quarter's highlight; its sales and operating profits both increased 4 percent. The turkey business had a "surprisingly strong performance," stock analyst Jonathan Feeney of Janney Capital Markets wrote in a research note.
Hormel's turkey business has been surging for several quarters, and the company has gotten a bit of boost in ground turkey from the troubles of a key rival, Minnetonka-based Cargill Inc.
Last fall, Cargill shut down ground turkey production for about three months at its Springdale, Ark., plant, after meat made there was linked to a salmonella outbreak.
Cargill couldn't completely make up for the plant's lost production, so some of its customers turned elsewhere, including to Hormel.
In an interview with the Star Tribune, Ettinger said Hormel picked up long-term ground turkey business from a "couple" of supermarket companies because of Cargill's supply issues.
Mike Hughlett • 612-673-7003
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