Hormel 3Q profit falls 9 percent on higher costs

SPAM
The SPAM booth at the 2007 Licensing International Expo in New York.
Timothy A. Clary/AFP/Getty Images

Hormel Foods Corp. said Thursday its fiscal third-quarter profit fell 9 percent as higher meat, fuel and other costs outweighed price increases and hurt margins.

For the three months ended July 27, the Austin, Minn.-based maker of Spam and Jennie-O Turkey said it earned $51.9 million, or 38 cents per share. That compares with a year-ago profit of $57.4 million, or 41 cents per share.

Revenue rose 10 percent to $1.68 billion, up from $1.52 billion during the same period last year.

The earnings fell just short of analyst expectations. Thomson Reuters said analysts expected earnings, excluding one-time items, of 39 cents per share on revenue of $1.62 billion.

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Shares of Hormel fell 50 cents, or 1.4 percent, to $34.64 in morning trading.

The quarter, as the company had previously announced, was hurt by higher feed and fuel costs at its Jennie-O Turkey Store segment, Chief Executive Jeffrey M. Ettinger said in a conference call. The segment posted an 11 percent increase in sales, to $310.5 million, but its operating profit fell 61 percent on higher fuel and feed costs.

Hormel said it raised prices in the quarter -- though it didn't say by how much. But the increases weren't enough to offset the $53 million jump in fuel and feed costs the segment saw.

Price increases were also hurt by an oversupply of turkey breast meat, which keeps prices down. Hormel has announced a 5 percent production cut, and others in the industry are doing the same, in an attempt to push prices back up.

Ettinger said the benefits of these cuts, along with lower grain costs, may not be felt until the spring of next year.

"As long as the commodity side of the business is not being detrimental to our results we're satisfied with that," Ettinger said. "That was obviously not the picture in this quarter and it won't be next quarter either."

The company's biggest segment - refrigerated foods - saw sales up 8 percent to $890.1 million on strong demand for its value products, include its Di Lusso Deli products and Hormel pepperoni.

But net sales were down in the foodservice division, which sells food to restaurants. Other food makers are reporting similar declines as more people abandon pricier restaurants to eat meals at home to save money.

The grocery division, which includes Spam, Dinty Moore stews and Hormel and Stagg chili, saw a 10 percent rise in sales to $222.9 million.

Sales of Spam -- the pork-in-a-can product -- helped drive growth in the company's segment that includes international business. Sales in that segment were up 33 percent to $61.7 million as Spam saw increases in most markets.

The company maintained its previously announced full-year guidance. It had lowered that to $2.22 to $2.28 a share earlier in the month, citing higher-than-expected input costs. Analysts are expecting earnings per share of $2.25, according to Thomson Reuters.

(Copyright 2008 by The Associated Press. All Rights Reserved.)