UPDATE 5-Hormel profit tops view with Spam demand; shares up
* Q1 EPS of 60 cts tops Wall St estimate of 51 cts
* Spam, Dinty Moore sales up in double-digits
* Affirms '09 EPS outlook of $2.15-$2.25
* Shares up nearly 7 pct (Adds comments from CEO interview)
NEW YORK, Feb 19 (Reuters) - Hormel Foods Corp (HRL.N) reported a higher-than-expected profit as recession-hit consumers gobbled up its Spam meat and Dinty Moore stew, and it affirmed its full-year outlook, sending shares up 6.8 percent.
Hormel's canned foods "are really poised to shine in this kind of environment," said Edward Jones analyst Matt Arnold, since they are "very affordable meal alternatives."
The canned foods are also high-margin, said Arnold, who has a "buy" rating on Hormel shares. "So even if there are some bumps in the road in other parts of the portfolio, this part should do relatively well this year," he said.
Hormel's earnings fell about 8 percent to $81.4 million, or 60 cents per share, in the first quarter ended on Jan. 25 from $88.2 million, or 64 cents per share, a year earlier.
Analysts on average were expecting profit of 51 cents per share, according to Reuters Estimates.
"Changes in consumer behavior resulting from the recession have had a mixed effect on our sales," said Chief Executive Jeffrey Ettinger, noting an upswing in some traditional brands and a weakening of some newer convenience items.
Net sales rose 4 percent to $1.69 billion, fueled by a 6 percent rise in the grocery products segment. Double-digit sales gains of Spam meat product, Dinty Moore stews and Hormel chili more than offset softer sales of Compleats microwaveable meals, the company said.
The company also gained market share in most categories, Ettinger said in an interview. Product line extensions and enhanced advertising helped boost sales along with the weakening economy that is forcing consumers to seek out value when grocery shopping, he said.
TURKEY, HOG PRICES HURT
Overall volume fell 1 percent in the quarter, Hormel said. Sales in its food service business declined as consumers ate more meals at home and traveled less.
Profit in the Jennie-O Turkey Store segment fell 16 percent, hurt by higher corn costs. That unit, which performed better than Hormel had expected, suffered in recent quarters as an industry oversupply of turkey breast meat and whole birds has kept prices below Hormel's cost of production.
Like other turkey producers, Hormel is working aggressively to reduce production at Jennie-O. Ettinger said he expects 2009 turkey production to be down in a high single-digit percentage range, in terms of pounds sold.
High feed costs and low meat prices have plagued most U.S. meat producers for some time, and forced chicken producer Pilgrim's Pride Corp PGPDQ.PK to seek bankruptcy protection.
While Hormel is "always looking for opportunities to grow our business, we're not really looking to buy things on the cheap," Ettinger said, implying that the company is not really interested in the industry's distressed assets.
Profit in the refrigerated foods segment -- which includes Dilusso Deli Co products, Hormel Black Label bacon and Hormel Natural Choice sandwich meats -- fell a worse-than-expected 27 percent, due in part to higher-than-anticipated hog costs.
Hormel affirmed its 2009 earnings outlook, saying it still expected to earn $2.15 to $2.25 per share.
Despite the recession, Hormel said it plans to spend more on advertising this year, in part to market new products. The company said it is on track to meet its goal of having $2 billion in sales from new products by fiscal 2012.
Hormel shares rose $2.08 to $32.50 at midday on the New York Stock Exchange. Through Wednesday's close, they had gained 22.5 percent from a year low of $24.84 reached in early December. (Reporting by Martinne Geller; Editing by Dave Zimmerman, Lisa Von Ahn and Gunna Dickson)
