000849 Hormel Profits Miss Estimates

Chicago - Hormel Foods Corp. reported quarterly earnings fell short of Wall Street estimates as higher hog prices hurt profits.

Hormel earned $29.1 million in the fiscal third quarter ended July 29, compared with $29.6 million a year earlier. Per-share earnings rose to 21 cents from 20 cents.

Analysts on average expected the Austin, Minn.-based company to earn 24 cents a share, according to First Call/Thomson Financial, which tracks such data.

“They missed earnings, but it could have been a lot worse. A lot of the issues that hurt them are cyclical in nature,” said Jeffrey Kanter, senior food analyst at Prudential Securities.

“This quarter they got squeezed,” said Merrill Lynch food analyst Eric Katzman. “It's a function of the hog prices. That's something that the company to a certain extent does not have control over.”

Hormel said it couldn't boost prices on pork products fast enough to compensate for higher hog prices in the spot market, noting that live hog costs rose 45% from a year ago.

High hog prices hurt profit margins in the pork segment, the company's largest, as low retail beef prices and large supplies of poultry that moved into the marketplace encouraged retailers to put more emphasis on beef and chicken features, Hormel said.

Third-quarter net sales rose 8.5% to $886.0 million.

The company also said many of the canned foods categories in which it competes were soft, though it gained market share in Hormel chili, SPAM luncheon meat, Dinty Moore stew, Mary Kitchen hash, Hormel chunk meats and Hormel bacon bits.

“The most shocking thing was grocery products volumes were flat, but their fresh meat volumes were up,” Kanter said.

He said grocery products tended to be the higher-margin items, but price increases put through in July hurt volumes in the category.

Hormel said seasoned fresh pork items under the Always Tender brand showed better growth, while sales of Hormel bacon, pepperoni and cooked entrees continued upward trends.

Higher-than-expected costs to launch the company's new Carapelli olive oil line also dampened profits, analysts said.

Shares of Hormel finished 3/16 lower at 16 on the New York Stock Exchange, recovering from a three-month low hit early in the day.

Analysts said several factors should improve fiscal fourth-quarter results, including a recent pullback in hog prices, lower animal feed costs and expected shipments of some Jennie-O turkey products that had been deferred.

“Fundamentally, it's just a very strong company,” said George Dahlman, food analyst with U.S. Bancorp Piper Jaffray.

The company is introducing several new turkey items, including corn dogs, seasoned burgers, variety pack luncheon meats and slice n' serve turkey breast.

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