Hormel earnings fall 4%; acquires Burke Corp.

by Allison Sebolt
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AUSTIN, MINN. — Higher-than expected input costs in Hormel Foods Corp. Grocery Products segment pressured profitability during the third quarter ended July 29, said Jeffrey M. Ettinger, chairman, president and chief executive officer.

Net earnings for the quarter were $57,374,000, equal to 42c per share on the common stock, down 4% compared with earnings of $59,551,000, or 43c per share, during the same quarter of 2006.

Net sales were $1,520,005,000, up 8% from $1,406,894,000 during the same quarter of the previous year.

"While we were disappointed with the overall results, we were encouraged by the 6% growth in our consolidated segment operating profit lead by strong year-over-year performance in Refrigerated Foods, Specialty Foods and the International division," Mr. Ettinger said. "We were also satisfied with the progress Jennie-O Turkey store is making to offset the higher grain input costs through higher pricing. Based on this progress, we expect Jennie-O Turkey Store will meet last year’s fourth-quarter results."

Operating profit for the Grocery Products segment was $26,868,000, down 2% from $27,525,000 during the same quarter of the previous year. Net sales in the category were $202,150,000, up 1% from $199,545,000 during the same quarter of the previous year.

Operating profit for the Refrigerated Foods segment was $36,764,000, up 23% from $30,023,000 during the same quarter of the previous year. Net sales for the segment were $825,285,000, up 9% from $756,611,000 during the same quarter of the previous year.

Operating profit for the Jennie-O Turkey Store was $20,841,000, down 19% from $25,715,000 during the same quarter of the previous year. Net sales for the Jennie-O Turkey Store were $278,588,000, up 4% from $267,754,000 during the same quarter of the previous year.

In the Specialty Foods segment, operating profit was $14,075,000, up 28% from $10,989,000 during the same quarter of the previous year. Sales in the segment were $167,694,000, up 14% from $146,583,000 during the same quarter of the previous year.

For the nine months ended July 29, net earnings were $200,700,000, equal to $1.46 per share, up 2% from $196,135,000, or $1.42 per share, during the same period of the previous year.

Net sales for the nine months were $4,528,685,000, up 8% from $4,188,172,000 during the same period of the previous year.

"We expect to see higher input costs continue into the fourth quarter," Mr. Ettinger said. "During these periods of commodity inflation, we remain focused on the long-term objectives of the company to grow the business through new product development and build upon our market share positions in our key categories."

Hormel also announced it has purchased Burke Corp., a privately-held manufacturer and marketer of pizza-toppings and other full-cooked meat products.

The purchase price was $110 million, and Hormel anticipates annual net sales of $125 million with the transaction being accretive to fiscal 2008 earnings.

"Hormel Foods is a leader in pepperoni, and the addition of Burke Corp. strengthens our position in the pizza-topping industry by expanding our offerings to food service customers," Mr. Ettinger said. "This acquisition increases our production efficiencies and adds manufacturing capabilities, enabling Hormel Foods to grow in this important category."

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