Strong Profits Prompt Hormel to Raise Expectations

The Austin-based food maker saw a 20 percent jump in second-quarter profit, prompting it to raise its earnings guidance for the fiscal year that ends in October; but the company's stock price decreased almost 5 percent on news of the strong second-quarter earnings.

Hormel Foods Corporation's second-quarter profit met Wall Street expectations and grew 20 percent over the same period last year, a move that has prompted the food manufacturer to boost its earnings guidance for the current fiscal year.

Net earnings for the quarter totaled $109.6 million, or 40 cents per share-up from $91.3 million, or 34 cents per share, during last year's second quarter. Revenue, meanwhile, totaled $2 billion, representing a 15 percent increase from the same period last year. Analysts polled by Thomson Reuters predicted earnings of 40 cents per share on net sales of $1.82 billion.

“We are pleased to report double-digit growth in both earnings and sales for the quarter,” Hormel Chairman, President, and CEO Jeffrey M. Ettinger said in a statement. “Earnings growth was led by our refrigerated foods and Jennie-O Turkey Store segments, both of which had a strong quarter.”

But despite the strong quarter, shares of Hormel's stock closed down almost 5 percent at $28.59 on Wednesday on a day when the stock market was generally up-which some analysts say signals that commodity prices are starting to take their toll and that the company's good times are losing some steam.

It's “very unlikely [business] stays this good forever,” Matt Arnold, a stock analyst at Edward Jones & Company, told the Star Tribune. “Expectations have caught up with Hormel.”

The refrigerated foods segment profit was up 27 percent, due primarily to higher pork operating margins, and sales were up 16 percent, the company said. Meanwhile, the operating profit for the Jennie-O Turkey Store-which produces a wide variety of turkey and other meat items-rose 45 percent from last year's second quarter, mostly thanks to stronger commodity meat markets and improved efficiencies; net sales for that segment grew 25 percent.

However, the operating profit for the grocery products segment-which includes the Spam family of products-fell 9 percent due to higher input costs, and the specialty foods segment operating profit decreased 11 percent due to higher raw material costs.

Still, the strong second-quarter results prompted Hormel to raise its earning guidance for the full fiscal year, which will end in October.It now expects $1.67 to $1.73 per share-up from the previously announced range of $1.62 to $1.68.

Hormel achieved a record $7.2 billion in sales during the fiscal year that ended in October 2010, which prompted the company to dole out $21.2 million in employee bonuses. Then in February, Hormel announced that its stockholders had approved a two-for-one stock split. All stockholders of record at the close of the business day on January 31 received one additional share of common stock for each share owned at that time. Ettinger said at the time that the stock split “demonstrates our confidence that we will continue to grow our sales and earnings in the future.”

Hormel is based in Austin and is among Minnesota's 15-largest public companies based on revenue.