UPDATE 4-Hormel serves up strong Spam sales, profits

Thu May 21, 2009 1:31pm EDT

* Q2 profit 59 cents/shr; average Street forecast 50 cents

* Sees full-year earnings near top of previous forecast

* Shares up 2.1 percent (Adds company and analyst comment; updates share price)

By Bob Burgdorfer

CHICAGO, May 21 (Reuters) - Hormel Foods Corp (HRL.N), maker of Spam and other meat products, reported better-than-expected quarterly profit on Thursday as consumers saved money by eating more meals at home.

The company also said full-year earnings would be near the top of its previous forecast of $2.15 to $2.25 per share.

"Prices are still high, costs are down, so overall performance has been pretty good," said Frost & Sullivan analyst Christopher Shanahan.

Food companies raised prices last year when costs for feed grains and other input items sped higher. Now many of these costs, particularly for feed grains, have moved back down, which has helped companies like Hormel, Shanahan said.

Sales of Hormel's signature Spam and Dinty Moore brands remained strong as shoppers sought value amid the weak economy. In addition, sales improved for some convenience items such microwaveable meals, the company said.

In an interview, Chief Executive Jeffrey Ettinger said he expected a strong grocery business through the fiscal year, which ends in October, while foodservice should remain weak.

For the second quarter ended April 26, earnings rose to $80.4 million, or 59 cents per share, from $77.6 million, or 56 cents per share, a year earlier.

The average Wall Street forecast was 50 cents a share, according to Reuters Estimates.

Revenue was little changed at $1.6 billion.

"As a result of our better-than-expected first half, we now anticipate full-year results in the upper end of our previously announced guidance range of $2.15 to $2.25 per share," Ettinger said in a statement.

Analysts on average had been expecting $2.25 a share.

COST PRESSURES LINGER

Hormel raises the turkeys for its Jennie-O Turkey Store brand, while it buys the hogs for its meat businesses.

Operating profit at Jennie-O rose 42 percent in the quarter due to lower feed costs as the company reduced turkey production.

The company said the hogs that it buys currently cost more than what some of the fresh pork is selling for.

"They still have a lot of headwinds, due to hog prices and the consumer environment," said Morningstar analyst Ann Gilpin.

Swine flu also hurt. Ettinger told analysts on a conference call that domestic pork sales had dropped about 10 percent when the flu first started spreading. However, much of that drop has been recovered.

The flu spread this spring from Mexico to the United States and prompted some countries to ban imports of U.S. pork, even though the virus is spread by humans, not by pigs.

Hormel shares were up 68 cents, or 2.1 percent, at $33.63 in afternoon New York Stock Exchange trading. (Reporting by Bob Burgdorfer; Editing by Lisa Von Ahn)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.