Hormel Foods Corp., the maker of Spam and other food products, said Thursday that its fiscal first-quarter profit fell 8 percent in part because of higher-than-expected hog costs, but the showing easily beat analyst estimates.
And the sales of brands like the iconic Spam, a pork product in a can, Dinty Moore stews and Hormel chili rose as consumers focus on value in the recession, said Chief Executive Jeffrey M. Ettinger.
The Austin, Minn.-based company, also known for its chili and Jennie-O Turkey products, earned $81.4 million, or 60 cents per share, down from $88.2 million, or 64 cents per share, a year ago.
Revenue rose 4 percent to $1.69 billion from $1.62 billion, while volume slipped 1 percent. Analysts polled by Thomson Reuters, whose estimates generally exclude one-time items, forecast profit of 51 cents per share on sales of $1.73 billion.
Shares of Hormel rose $2.01, or 6.6 percent, to $32.43 in morning trading.
The refrigerated foods division saw its operating profit slide 27 percent. Aside from hog costs, the unit was also hurt because market prices were lower than expected. Operating profit for the specialty foods segment dropped 16 percent.
The grocery products division fared better, with operating profit up 9 percent on strong canned meat sales.
Though Jennie-O Turkey Store's operating profit fell 16 percent, Ettinger said in a statement that the unit was "doing a good job of addressing the difficult market conditions, including very weak commodity meat markets and higher input costs that continue to work their way through the system."
The recession has led to higher sales of some traditional products and weaker demand for some of Hormel's newer convenience items, Ettinger added.
Deutsche Bank-North America analyst Christina McGlone wrote in a note to clients that sales rose 6 percent in the grocery segment, with volume up 2 percent driven by strong canned meat sales.
But food service sales dropped, on a continuing trend of budget-conscious consumers curbing their spending due to economic and unemployment concerns.
They're pulling back on restaurant spending, which hurts demand for food service products. At the same time, they're also trading down to store brands to save money, which could hurt sales of brand-name goods.
Ettinger told analysts that's not too much of a concern for Hormel because many of its brands are relatively resistant to people trading down.
"We pretty much have those leading share positions in the niche categories we're competing in," he said.
The company maintained its 2009 profit outlook of $2.15 to $2.25 per share. Analysts expect full-year earnings of $2.21 per share.
(Copyright 2009 by The Associated Press. All Rights Reserved.)