Hormel 3rd-quarter net income up 11 percent on strong sales of Hormel chili, other products

Hormel 3rd-quarter net income rises

NEW YORK — Hormel Foods Corp. said strong sales of its grocery products such as Hormel Chili helped its net income rise 11 percent in the third quarter despite higher commodity costs.

The maker of Spam, Dinty Moore and other foods on Friday raised its earnings guidance for the year on the results.

CEO Jeff Ettinger said in a call with analysts that the company continues to face rising costs, especially for pork.

“We expect higher hog costs to continue in the fourth quarter,” hurting margins in Hormel’s refrigerated foods segment and pork-based grocery products,” he said.

The meat industry is slowly recovering after a downturn brought on by high ingredient costs and low selling prices because of oversupply and weak demand. As demand improves, the meat producers have cut production, causing prices to rise.

Earlier this month, for example, Tyson Foods Inc. reported pork prices jumped 31.6 percent during the three months ended July 3.

Hormel, like many food makers, has also been dealing with rising prices for grain and other commodities.

The company is offsetting the higher prices in part by retail price increases.

Chief Financial Officer Jody Feragen said the company has been raising prices for some meat products in its refrigerated foods and food-service businesses.

“We’re trying to create the balance between what we’re encountering in terms of increased input costs but also trying to be sensitive to what the consumers and customers are looking for in terms of trying to hit certain price points,” she said.

Net income rose to $85.4 million, or 63 cents per share. That’s up from $77.2 million, or 57 cents per share, last year. Analysts polled by Thomson Reuters, on average, expected a smaller 60 cents per share.

Revenue rose 10 percent to $1.73 billion from $1.57 billion last year. Analysts expected $1.7 billion. Volume rose 2 percent.

Revenue from Hormel’s refrigerated foods, including Hormel party trays and Lloyd’s Barbeque products, rose 12 percent. That segment makes up more than half of Hormel’s revenue.

Revenue from its grocery products such as Hormel Chili also rose 12 percent, on a 16 percent rise in volume, but operating profit fell 23 percent because of higher raw material costs. The segment was boosted by revenue from its MegaMex brand, the company’s joint venture with Mexican food company Herdez Del Fuerte SA.

“We expect better sales from canned items as we head into the traditional canned season for this fall,” Ettinger said.

Jennie-O Turkey revenue was flat, but segment profit nearly doubled because of cost-cutting and better commodity pricing.

Ettinger said Hormel “spent heavily on advertising on the Jennie-O Turkey Store brand in the third quarter, gaining additional exposure and building the strength of the brand.”

He said the company will continue to spend on advertising for Jennie-O in the fourth quarter.

The company now expects net income, excluding one-time items, of $2.85 to $2.91 per share, from prior guidance of $2.75 to $2.85 per share. Analysts expect net income of $2.84 per share. Analyst estimates typically exclude one-time items.

Shares rose 11 cents to close at $43.48.