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Spam sales still sizzle

  • Article by: PATRICK KENNEDY
  • Star Tribune
  • August 23, 2012 - 9:06 PM

Score a win for Sir Can-A-Lot.

Helped by the new mascot for its 75-year-old Spam franchise, Hormel Foods Corp. on Thursday reported record third-quarter earnings as all five of its product segments registered profit gains.

"Our advertising campaign featuring Sir Can-A-Lot, and the publicity around the 75th anniversary, has contributed to the nice sales increase," Hormel CEO Jeffrey Ettinger told securities analysts during a conference call Thursday.

Revenue at the Austin-based manufacturer of consumer-branded foods was $2 billion in the third quarter, up 5.1 percent from the third quarter last year. Earnings of $111.2 million, or 42 cents per share, rose 12.9 percent.

"All five segments reported increased earnings, led by our grocery products segment," said Ettinger in a statement. "Our strong sales growth across multiple segments demonstrates that our products are connecting with customers."

The company's grocery products segment, which includes Spam, reported sales rose to $297.2 million, up 21.1 percent from the third quarter last year. Operating profit was $40.1 million, up 31.6 percent. Spam and Hormel canned chili are the core products of Hormel's grocery segment. So any campaign that gins up Spam sales will have an effect on Hormel's bottom line.

The segment's shelf-stable Compleats microwave meals showed growth, as did its line of Mexican foods, led by Wholly Guacamole dips and by salsa and tortilla products, Ettinger said.

The company's largest business segment is refrigerated foods. The segment, which includes Hormel Natural Choice deli meats and Hormel bacon, represents 52 percent of overall revenue. Volume for the segment was up 1 percent in the third quarter, but sales were flat at $1.043 billion. Operating profit was $60.8 million, up 6.9 percent over the third quarter last year.

Grain costs push higher

Increasing costs of grain due to a persistent drought present a threat to the company earnings, but the company maintains it is on track to achieve its full-year earnings forecast of $1.79 to $1.89 per share.

"Increased grain cost will present a challenge," Ettinger said. "But the strength of our balanced business model and the vibrancy of our branded, value-added portfolio should support continued sales and earnings growth as we close out fiscal 2012."

Jennie-O posted a 12 percent increase in operating profit and a 7 percent increase in dollar sales. The increased sales and an improved product mix offset higher feed costs and lower commodity meat process, Hormel said.

Ettinger said fourth-quarter margins for the Jennie-O Turkey Stores will be affected "as we cycle in higher grain costs."

Hormel shares closed at $28.82, up 40 cents, or 1.4 percent.

Hormel investor William Frels, CEO of Mairs and Power Inc., was pleased with the report.

"It was an impressive showing, and the market liked it. It was a down day in the market, but Hormel was up," Frels said. "They were swimming upstream today."

Hormel has been a core holding for Mairs and Power for a long time. Frels said the money managers like Hormel's strategy of continuing to introduce new products within their major product segments. The strategy allows Hormel to charge premium prices for its branded food products while commodity food items are more susceptible to pricing pressure and rising raw material costs.

Patrick Kennedy • 612-673-7926

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