(Updates with comments from an interview with the company's
chief executive)
DOW JONES NEWSWIRES
Hormel Foods Corp.'s (HRL) fiscal second-quarter profit rose
3.6% on a gain from a dissolved joint venture, as production cuts
helped offset falling volume.
The maker of processed meats also sees fiscal-year earnings at
the high end of its forecast as the quarter's profit handily beat
analysts' expectations.
The results came despite "a continuation of some of the same
trends we saw in the first quarter, as consumers seek value in
retail channels while foodservice sales remain soft," said Chairman
and Chief Executive Jeffrey M. Ettinger. "Unlike the first quarter,
however, we have seen improvement in sales of some of our
convenience items."
The meat industry, like many others, is reeling from declining
demand and oversupply, forcing producers, processors and
supermarkets to cut production and prices.
For the quarter ended April 26, the maker of Spam and Dinty
Moore stews posted earnings of $80.4 million, or 59 cents a share,
up from $77.6 million, or 56 cents a share, a year earlier. The
profit climb was due to investment and other income more than
doubling to $8.6 million amid the venture-dissolution gain.
In an interview, Ettinger said the company has seen some signs
of improved consumer sentiment as businesses - like convenience
meals - that had suffered the most during the recession did better
in the latest quarter. The company saw an initial drop in fresh
pork volumes in the U.S. when fears about the H1N1 flu peaked, but
has since seen demand stabilize. Ahead of Memorial Day, Hormel is
working on some promotions on pork products, he said. While, the
company is using promotions in some categories, it is "not throwing
a lot of extra money" into promotions, Ettinger said.
Net sales inched up 0.1% to $1.6 billion. Volume dropped 2%, or
3% excluding acquisitions.
Analysts surveyed by Thomson Reuters were expecting earnings of
50 cents a share on revenue of $1.68 billion.
Gross margin slipped to 16.4% from 16.6%.
Despite higher costs, analysts say production cuts will help
keep meat prices down. Unlike other commodity sectors where supply
levels are relatively easy to manage, animal life cycles prevent
livestock producers from reacting quickly to changes in the
market.
Jennie-O Turkey profit rose 42%, helped by lower feed costs due
to reduced turkey production. The business has been a
long-struggling one for Hormel, but its turnaround appears to be
taking hold, noted Ettinger.
Earnings in the refrigerated foods segment - by far Hormel's
biggest division - fell 7% due to the spread between hog costs and
primal values as well as soft foodservice sales. Volume dropped 2%
but revenue was flat on price increases.
Shares of Hormel, added to the Standard & Poor's 500 Index
in March, were recently up 2.03% at $33.62.
-By Mike Barris, Dow Jones Newswires; 201-938-5658;
mike.barris@dowjones.com, and Anjali Cordeiro; Dow Jones Newswires;
201-938-2408; anjali.cordeiro@dowjones.com
