First-quarter income up at Hormel despite higher costs

by FoodBusinessNews.net Staff
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AUSTIN, MINN. — For the first quarter ended Jan. 28, net income at Hormel Foods Corp. rose 9% to $75,325,000, equal to 55c per share on the common stock, from $69,276,000, or 50c, in the same period last year.

Net sales for the quarter totaled $1,504,083,000, up 6% from $1,415,933,000 in the first quarter of 2006.

The company’s Grocery Products segment, which accounts for 14% of sales and 26% of operating profit, saw sales and operating profit increase a modest 1% as the company continues to struggle with contemporizing some of its brands, including Spam, Dinty Moore and Chi-Chi’s sauces. The microwave tray line of products has proven successful and the company is increasing its promotional and marketing support of the line in order to increase household penetration.

The Refrigerated Foods segment, comprising 53% of net sales and 32% of operating profit, had a strong quarter as the company’s growing value-added products portfolio delivered positive results. Net sales for the quarter grew 5% and operating profit grew 8%.

The company’s Jennie-O Turkey Store fared poorly in the quarter, as higher input costs, including grain markets and costs associated with outside meat purchases failed to offset growth in value-added products. The Jennie-O Turkey Store, which accounts for 18% of net sales and 23% of operating profit, saw sales rise 4% in the quarter as income fell 25%. The company is seeking ways to offset the rising costs, including increasing prices and reducing costs.

The Specialty Foods segment, which makes up 3% of net sales and 5% of operating profit, had a successful quarter as liquid portion packets, blended nutritional products and ready-to-drink items led the way. Net sales in the quarter grew 17% and operating profit rose 75%.

The company’s All Other segment, which includes its International business unit, grew significantly as export sales of Stagg chili and food service products were strong. Net sales grew 33% in the quarter and net profits grew 65%. These account for 3% and 5% of total company data, respectively.

Looking ahead, the company will continue to focus on its value-added product lines and explore means of offsetting high input costs, said Jeffrey M. Ettinger, chairman, president and chief executive officer of Hormel Foods.

"The sharp rise in grain markets has added a new dynamic to our business and to the food industry in general," Mr. Ettinger said. "We anticipate higher grain costs will continue to burden our turkey operation and we are working hard to find ways to offset this extra expense, including through advances in pricing."

For the fiscal 2007, the company is maintaining its e.p.s. guidance of $2.15 to $2.25. For the second quarter, the company anticipates e.p.s. growth of 47c to 53c per share, Mr. Ettinger said.

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