Hormel 3Q profit rises 49 pct to beat analyst expectations even as sales fell

Hormel 3Q profit rises 49 pct despite sales drop

MILWAUKEE — Hormel Foods Corp. said Thursday its third-quarter profit rose 49 percent to beat estimates as costs fell, but sales and volume dropped as consumers limited their spending on more expensive items like microwavable meals.

The Austin, Minn.-based company continued to see strong sales in its Spam franchise, in Hormel chili and in Mexican products like Chi-Chi’s. Its operating profit was better in grocery products, refrigerated foods and its Jennie-O Turkey Store brand, even as sales fell.

Conditions improved in its Jennie-O Turkey Store unit, which had been hurting from high ingredient costs last year and an oversupply on the market, which limits the ability to raise prices. Production has been cut just about 10 percent and the company is pleased with the unit’s performance, CEO Jeffrey Ettinger said in an interview. Profit rose 97 percent in the turkey business in the quarter, though Ettinger said the results were still lower than they were two years ago.

Volume slipped 2 percent and dollar sales fell 5 percent, but feed costs are coming down as commodity prices tumble, which helps boost profits.

Hormel plans a new advertising campaign for Jennie-O in the fourth quarter to push its value-added products — items that typically are more expensive than traditional ones. Ettinger said the goal is to restore growth.

“The campaign is much more about the brand and much more about the health and wellness benefit that turkey products and Jennie-O Turkey Store items in particular provide the consumers,” he said.

Consumers are still willing to spend money where they see value, he said, pointing to the continued success throughout the recession of the company’s party trays, which cost about $10.

But in other areas, like frozen foods, consumers are limiting purchases. Sales of Hormel’s Compleats microwavable meals fell in the low double digits.

People are shopping with their budgets in mind, so they’re willing to sacrifice the convenience of products like frozen foods, said Matt Arnold, a research analyst with Edward Jones.

“Right now the consumer won’t pay for convenience, and they’ll take the extra step themselves,” he said.

For the three-month period ending July 26, Hormel earned $77.2 million, or 57 cents per share. That’s up from earnings of $51.9 million, or 38 cents per share, a year earlier.

Analysts polled by Thomson Reuters had predicted 52 cents per share in profit.

Revenue fell 6 percent to $1.57 billion from $1.68 billion. Analysts had expected $1.7 billion.

Volume fell 4 percent, due to reductions in turkey production and the weak economy affecting sales, Ettinger said.

The grocery products segment, which includes Spam, posted an 8 percent drop in volume, and 6.2 percent drop in revenue. But if sales from a recently discontinued olive oil line are excluded, net sales were even. Sales of Spam were up in the low double digits again, and have been there all year, the company said, as Spam benefits from new versions of the product.

“The advent of Spam singles on a national level, coupled with the economic effect combined to really stimulate that franchise,” Ettinger said.

The refrigerated foods segment, which makes up more than half of the company’s sales, had a 1 percent decrease in volume, while dollar sales fell 5 percent. Sales of Hormel pepperoni and party trays, and DiLusso Deli Company products were all strong.

The company was able to benefit from weak pork prices since it uses pork as an ingredient, though demand for the products was weak, especially for exports because some countries are still wary of the H1N1 virus, even though it doesn’t travel by eating meat.

Pork prices have fallen as demand weakens amid an oversupply on the market, which keeps prices down.

Earlier this month, Hormel raised its 2009 profit guidance, which it left unchanged Thursday at $2.36 to $2.42 per share.

Shares rose 20 cents to end at $37.44 in trading Thursday.

AP Business Writer Vinnee Tong contributed to this report from New York.