Hormel earnings rise 37 percent

Published 9:06 am Thursday, February 18, 2010

Hormel Foods Corp. reported strong earnings from the fiscal 2010 first quarter, as the company increased earnings by 37 percent over last year’s first quarter.

“We got off to a great start in the first quarter,” said Jeffrey M. Ettinger, CEO, president and chairman of the board, during a conference call Thursday morning.

The company reported fiscal 2010 first quarter net earnings of $111.2 million, compared to earnings of $81.4 million a year earlier — a 37 percent increase. Diluted earnings per share for the quarter were $.82 compared to $.60 per share last year.

“We are pleased to report record earnings and sales for the quarter,” Ettinger said in a press release highlighting the company’s first quarter earnings. “Four of our five business segments delivered double-digit profit gains during the quarter. We are particularly gratified to see the solid improvement in sales and will continue to focus our efforts in this area.

Our announcement last week regarding our new Hormel brand advertising campaign demonstrates our commitment to growing our top-line.”

First quarter sales totaled $1.73 billion — up 2 percent from fiscal 2009. Hormel’s sales had declined more than expected during the fourth quarter of 2009. The company sought to improve sales, partially through an increased advertising campaign. Ettinger said advertising expenditures will increase modestly this year.

Hormel’s Grocery Products segment had a strong first quarter, as profit increased by 37 percent. According to a Hormel press release, lower costs and increased revenues of core products like Hormel chili, Dinty Moore stews and Spam products drove the increase.

“Our Grocery Products segment had an excellent quarter, with strong sales of canned meats and Mexican food products,” Ettinger said. “Our Refrigerated Foods segment had a strong quarter, helped by improved cutout margins. Our Jennie-O Turkey Store segment showed strength, largely as a result of a better whole bird season. They also experienced improved sales of value-added products. Our Specialty Foods segment had a good quarter, with strong sales of private label products and sugar substitutes, while our International segment experienced weaker results.”

Hormel’s new MegaMex Foods contributed to the increase. Ettinger said MegaMex foods has compensated for the discontinued Carapelli Olive Oil line.

While the Hormel Compleats microwavable meals line showed positive signs during the quarter, Ettinger admitted the line’s performance has fluctuated in the past. Ettinger said the recently opened Hormel plant in Dubuque, Iowa, will could lead to strengthened costs in the line.

“In the long haul, we’re still very optimistic in the product line,” Ettinger said.

Hormel’s Refrigerated Foods increased operating profit by 53 percent. However, volume was flat during the quarter and dollar sales decreased by 1 percent. While favorable spreads between hog costs and primal values benefited the segment, revenue was flat for the quarter, the company experienced softer demand for hams, bacon and commodity pork, the release stated.

In the first quarter, Jennie-O Turkey Store increased its segment profit results by 14 percent. Ettinger said stronger whole bird sales and better commodity meat prices helped drive these results. Revenue in Jennie-O Turkey Store increased 5 percent for this segment due to increased whole bird and value-added sales.

Segment profit for Specialty Foods increased by 28 percent. Revenue grew 5 percent, partially because of higher contract manufacturing and sugar substitute sales. Improved results were driven primarily by sales of private label products and sugar substitutes.

However, segment profit declined by 6 percent for the quarter in the All Other segment, which includes Hormel Foods International. The decline was largely due to weaker exports of fresh pork products, the release stated. Revenue increased modestly for the quarter due to strong exports of Spam products.

Overall, Hormel’s revenue increased 8 percent for the quarter.

“As a result of our better than expected results in the first quarter, we are raising our full year guidance range from $2.63 to $2.73 per share to $2.68 to $2.78 per share,” Ettinger said. “We anticipate higher hog costs as we progress through the year, and we recognize the strong investment performance in our rabbi trust last year will result in a more difficult comparison. Nevertheless, we believe our strong portfolio of branded products and the strength of our dedicated team should allow us to build upon the momentum of our excellent start.”

While Ettinger described earnings in the quarter as extraordinary, he said the company expects more modest gains in future quarters.