Hormel Foods’ bang-up first-quarter earnings, coupled with renewed optimism about its turkey business, led the company to raise its profit outlook for the full year.
Hormel’s stock reacted by jumping 7 percent, or $2.94, to close at $44.44.
Lower costs for pork and other ingredients helped lift Hormel’s earnings by 23 percent compared with a year ago, handily beating Wall Street expectations.
“We are pleased to report a double-digit earnings increase in the quarter, with four of our five segments posting earnings growth,” Hormel’s CEO Jeffrey Ettinger said in a statement.
The Austin-based maker of Spam, Skippy peanut butter and myriad fresh meats said it earned $235.1 million, or 43 cents per share, for its fiscal first quarter ended Jan. 24. Stock analysts on average were forecasting earnings of 37 cents per share.
Hormel’s sales, though, missed analysts’ marks. They tallied $2.3 billion, down 4 percent from a year ago and 4 percent below forecasts of $2.4 billion. Sales were partly muted by lingering turkey supply constraints from last year’s bird flu epidemic, which hurt Hormel’s Jennie-O business. Still, Jennie-O’s prospects are looking up — as long as the lethal flu doesn’t return this spring to Minnesota and Wisconsin, where Hormel raises its birds. Last spring, the flu hit more than 100 farms, leading to the deaths of 4 million turkeys in Minnesota alone. Hormel owned or contracted with a big chunk of those farms.
“While the Jennie-O Turkey Store business is still recovering from the impact of avian influenza last year, production volumes are expected to return to more normalized volumes by the end of the second quarter,” James Snee, Hormel’s chief operating officer, said Tuesday at the annual conference of the Consumer Analyst Group of New York, which is held in Boca Raton, Fla. “That will position them for strong growth in the back half of the year.”
The turkey division’s momentum and Hormel’s overall strong first quarter led the company to raise its fiscal 2016 earnings guidance range from $1.43-to-$1.48 per share to $1.50-to-$1.56 per share.
Good old ham and bacon helped Hormel in the first quarter. They’re part of Hormel’s largest division, refrigerated foods, which saw a 65 percent increase in first-quarter operating profits over a year ago, driven partly by higher profit margins in its pork business. Low hog prices are giving pork producers a boost, though Hormel said it expects pork margins to moderate. Sales in the refrigerated food business, which accounts for 51 percent of Hormel’s total revenue, rose 2 percent.
Hormel’s grocery division, which includes shelf-stable products like canned chili, recorded a 26 percent increase in operating profits, benefiting from lower raw material costs and efficiency improvements at plants. But sales in the division, which makes up 17 percent of revenue, fell 4 percent.
At Jennie-O, operating profits fell 2 percent and sales were down 15 percent. Jennie-O makes up 16 percent of Hormel’s total sales.
Hormel’s specialty foods division, which includes its Muscle Milk protein drinks, had a 44 percent rise in operating profits during the quarter. Hormel’s international division saw a slight profit increase.