Hormel's 12% profit rise misses forecasts

Hormel Foods Corp. on Wednesday came up short of Wall Street's quarterly profit expectations, as the cruel Midwestern winter continued to weigh on its turkey business.

Fuel costs to heat Hormel's turkey barns soared, and the company's birds weighed less than usual, depressing sales volume.

"The unusually cold weather along with abnormally high propane and natural gas prices negatively impacted our live turkey productivity and margins," Hormel CEO Jeffrey Ettinger said in a conference call with stock analysts.

Looking ahead, Ettinger said he expects to see continued "elevated" costs in several areas, from beef to pork to avocados for Hormel's line of Mexican foods.

Austin-based Hormel reported net earnings of $140.1 million, or 52 cents per share, for its quarter ended April 27. That's up 12 percent from $125.5 million, or 46 cents per share, a year ago. But analysts polled by Thomson Reuters were on average expecting quarterly profits of 56 cents per share.

Sales rose 4 percent to $2.2 billion, in line with analysts' expectations.

"It was a pretty difficult operating environment," said Brian Yarbrough, a stock analyst at Edward Jones.

Hormel's stock closed Wednesday at $47.14, down $1.39 or 2.9 percent.

Hormel's Jennie-O Turkey Store division recorded operating profit growth of only 2 percent over a year ago, while its sales fell 1 percent. Since turkeys are produced on 22-week growing cycle, the high costs at Jennie-O will continue to work through the system this quarter, Ettinger said.

Hormel's refrigerated foods division, which accounts for 50 percent of its sales, had a decent quarter with a 38 percent increase in operating profits. Higher margins on pork products offset rising hog costs, while sales of bacon were strong. Revenue in the division, which is heavy on pork products, was up 10 percent.

However, Ettinger told analysts the company expects hog supplies "to tighten significantly later in our third quarter." Due to the hog shortfall, Hormel will reduce slaughter operations from five days to four days at its Fremont, Neb., plant, beginning in June.

The pork industry is generally facing supply constrictions due to a virus — porcine epidemic diarrhea — sweeping through sow barns across the nation. The virus is fatal to many very young pigs.

"We're very pleased with how Skippy has been performing."

However, Hormel's Compleats line of microwave dinners had a weak quarter. "We continue to see sluggish sales when it comes to that product line," Ettinger said. The company is looking at different packaging and pricing strategies — "you name it" — to kick-start Compleats, he said.

Mike Hughlett • 612-673-7003