The bird flu that has plagued Hormel Foods Corp.'s Jennie-O turkey business hasn't slowed the company's momentum.
Austin, Minn.-based Hormel beat analysts' third-quarter earnings expectations and upped its full-year profit guidance, as its other core businesses — from canned chili to Skippy peanut butter and fresh pork products — have been prospering.
The bird flu has sapped turkey supplies and reduced Jennie-O sales while increasing its costs. But in other Hormel divisions, input costs — particularly hog prices — have been falling, boosting profitability.
"It's another impressive quarter," said Brian Yarbrough, a stock analyst at Edward Jones. "When you think of avian flu and everything going on with Jennie-O, [Hormel] still put up 11 percent [adjusted] earnings growth."
Investors seemed happy as Hormel's shares closed Wednesday at $61.22, up 72 cents, or 1.2 percent, on a day when the broad market sunk.
Hormel posted net earnings of $146.9 million, or 54 cents per share, for the three months ended July 26. Excluding one-time costs, net earnings were 56 cents per share, 11 percent higher than a year ago and a penny above the consensus estimate from analysts polled by Thomson Reuters.
Sales trends for the third quarter were negative. Hormel's revenue amounted to $2.2 billion, down 4 percent from a year ago and shy of the $2.26 billion forecast by analysts. Jennie-O's woes contributed to that shortfall.
However, Hormel expects strong profitability into the fourth quarter. The company is raising its adjusted earnings guidance to a range of $2.57 to $2.63 per share, up from $2.50 to $2.60 per share.
"Overall, we view today's results and guidance increase positively," Robert Moskow, Credit Suisse stock analyst, wrote in a research note. Critical to Hormel's performance is it's "portfolio diversity," meaning its breadth of product categories.
Grocery products helped drive earnings growth during the quarter, CEO Jeffrey Ettinger told stock analysts in a conference call. The company's grocery products segment, which includes chili and Skippy peanut butter, saw a 57 percent increase in operating profits on an 8 percent increase in sales.
Refrigerated foods, which includes pork products like bacon and ham, saw operating profit rise 9 percent, though sales were down 11 percent. The division, Hormel's biggest, benefited from the sharp drop in hog prices.
Grocery products and refrigerated foods will continue to drive earnings increases in the fourth quarter, Ettinger said.
The Jennie-O Turkey Store division experienced a 45 percent decrease in operating profit during the third quarter and a 12 percent decline in sales, consequences of the bird flu that rolled through the Upper Midwest and killed 9 million turkeys and chickens in Minnesota alone.
The deadly flu struck 52 turkey farms affiliated with Jennie-O — most of them in Minnesota — putting a big dent in the company's bird supply. Two-thirds of Jennie-O's farms are now restocked with live birds, Ettinger told analysts, and the rest will be repopulated during the current quarter.
Still, turkey supply kinks won't likely be worked out for a while. "Jennie-O will continue to be significantly challenged due to bird flu impacts on our supply chain," Ettinger said.
The bird flu's affect on Jennie-O sales in Hormel's fourth quarter should be similar to the third. And Ettinger said the company is "expecting volume struggles even into the first half of the next [fiscal] year."
However, a top Jennie-O executive told the Star Tribune recently that the company doesn't expect a turkey shortage at Thanksgiving.