Hormel's first-quarter net earnings up 17%

by Bryan Salvage
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AUSTIN, MINN. ― Access to lower-cost raw material and a continued focus on high-margin, value-added products has led to positive first-quarter earnings for Hormel Foods Corp. Net
income in the first quarter ended Jan. 27 was $88,181,000, equal to 65c per share on the common stock, up 17% from $75,325,000, or 55c per share, in the same period a year ago. Sales totaled $1,621,165,000, up from $1,504,083,000 in fiscal 2007.

"Our team has ample reason to be proud of our results in the first quarter, continuing the momentum we achieved in the last quarter of fiscal 2007," said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

Profit for the Grocery Products segment, which makes up 14% of net sales and 22% of total operating profit, was up 10% compared with last year. Continued growth of the Hormel Compleats microwave product line and strong sales of the Spam brand of products and Hormel and Stagg chili contributed to the positive results.

Operating profit for Refrigerated Foods, which makes up 53% of Hormel’s total net sales and 39% of total operating profit, increased 50% compared with the first quarter last year. Lower pork raw material input costs contributed to improved margins among the segment’s value-added business. The company’s refrigerated entrées and the Hormel Natural Choice sandwich meats both reported double-digit sales increases

Jennie-O Turkey Store accounts for 18% of total net sales and 22% of total operating profit. This segment posted operating profit results 16% higher than last year for the first quarter. Higher grain costs were offset by a combination of higher pricing, adjusting product mixes and improving processing efficiencies. Value-added revenue grew 5% with each of the retail, deli, and foodservice divisions contributing to the increase.

The International business unit ended the quarter with operating profit up 39% compared with last year. Strong export sales of the Spam family of products, Stagg chili, and fresh pork were key drivers during the quarter. The profitability of Hormel’s China operations also improved compared to last year as a result of higher selling prices and a continued emphasis on growing value-added sales. Equity in earnings of affiliates improved compared to last year due to better results at the company’s Purefoods-Hormel joint venture in the Philippines.

"We are reconfirming our fiscal 2008 guidance range of $2.30-$2.40 per share," Mr. Ettinger said. "Although we anticipate pressure from higher-than-expected grain and energy costs, we expect to continue to benefit from lower protein input costs. The strength of our core businesses, the growth of our value-added products, and the ability of our people to adapt to changes in the business environment should allow us to meet our goals."

Effective Feb. 15, the company will pay its 318th consecutive quarterly dividend. The annual rate is 74c.

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