Hormel reports lower profit, higher revenue in Q1

by Bryan Salvage
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AUSTIN, MINN. – Weaker markets, higher-than-anticipated hog costs and softening demand for some convenience products resulted in Hormel Foods Corporation’s profit falling 8% during its fiscal 2009 first quarter, despite a 4% increase in revenue to $1.69 billion from $1.62 billion during the same period last year. Earnings of $81.4 million compared to $88.2 million resulted in diluted earnings per share of $.60 for the quarter, which is down 6% from $.64 per share from first-quarter 2008. Segment operating profit was down 14% from last year while sales of $1.7 billion were up 4% over last year.

"Despite a very challenging economic climate, our first-quarter results leave us on track to meet our annual earnings guidance goal," said Jeffrey M. Ettinger, chairman, president and chief executive officer. "As anticipated, we started out the year with weaker operating results, resulting in a decline of 4 cents per share from our record earnings of a year ago."

Mr. Ettinger said Hormel’s Grocery Products segment had a solid quarter, led by strong canned meat sales. The Jennie-O Turkey Store segment is successfully addressing the difficult market conditions, including very weak commodity meat markets and higher input costs that continue to work their way through the system, he added.

"Our Refrigerated Foods segment experienced a difficult quarter," Mr. Ettinger said. "Higher-than-anticipated hog costs, combined with weaker-than-expected primal markets, led to losses in our pork operations that we were not able to offset, despite a strong performance by our meat products group. Our Specialty Foods and All Other segments also had weaker results."

Operating profit for the Refrigerated Foods segment decreased 27% for the quarter, primarily attributable to a significant decline in the spread between hog costs and primal values. The Meat Products business unit performed well during the quarter, led by strong results for value-added products.

Foodservice sales declined during the quarter, reflecting a trend among consumers to eat more meals at home.

Hormel’s Grocery Products segment experienced a 6% sales increase and a 9% increase in operating profit for the quarter compared to last year. Strong sales of canned meat items more than offset softer sales of Hormel’s Compleats microwavable meals. 

Operating profit for Jennie-O Turkey Store was down 16% in the first quarter. Higher grain costs compared to prices a year ago continued to work their way through the system. These were not fully recovered in light of the significantly-lower commodity market for breast meat. Continued strong sales of value-added products by the retail group during the quarter helped minimize the decline from year-ago results.

The Specialty Foods group reported a 16% decrease in operating profit. Sales of ready-to-drink and nutritional powders at Century Foods softened due to the difficult economic conditions. Hormel Specialty Products also suffered from reduced contract packaging sales of microwave products. Meanwhile, Diamond Crystal Brands experienced solid growth during the quarter, led by improved performance of their nutritional healthcare products.

The All Other segment, which includes Hormel Foods International, experienced a 9% decrease in operating profit for the quarter. Strong sales from exports of fresh pork and the Spam family of products were unable to fully offset the negative impact of the strengthening U.S. dollar and weaker results experienced by our joint ventures.

"We are reconfirming our fiscal 2009 guidance of $2.15 - $2.25 per share," Mr. Ettinger said.

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