Hormel Foods Q3 earnings pressured by input costs

by Keith Nunes
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AUSTIN, MINN. — Higher feed input and fuel costs in its Jennie-O Turkey Store division and relatively flat results in its Refrigerated Foods segment negatively impacted Hormel Foods Corp.’s third-quarter earnings. Net income in the third quarter ended July 27 was $51,947,000, equal to 38c per share on the common stock. The result was a decline of 9% compared with the same period during fiscal 2007 when the company recorded net income of $57,374,000, or 42c per share. Sales for the quarter were $1,678,142,000, up from $1,520,005,000 during the same period of fiscal 2007.

Within Refrigerated Foods, the company’s largest business unit, operating income declined 1% to $36,331,000 in the third quarter compared with $36,764,000 during the same period of fiscal 2007. The company said higher input and other costs were not fully recovered through pricing and subsequently contributed to the decline in operating income. Sales for the quarter were $890,978,000 compared with $825,285,000 during fiscal 2007. Hormel’s Dilusso Deli and Pepperoni lines of products experienced strong sales growth during the quarter while net sales were down in food service.

Operating income in Hormel’s Jennie-O Turkey Store segment declined 61% to $8,076,000 in the third quarter from $20,841,000 during 2007, due to higher feed costs. Sales for the quarter were $310,532,000. An oversupply of turkey breast meat in the market also kept pricing of commodity breast meat at a low level, exacerbating the cost-price differential, according to the company.

Within its Grocery Products, Specialty Foods and All Other business units, Hormel Foods experienced positive operating income.

"We were encouraged by the strong top-line and bottom-line growth by our Grocery Products, Specialty Foods and All Other segments," said Jeffrey M. Ettinger, chairman, president and chief executive officer of Hormel Foods. "Our Grocery Products and All Other segments maintained the strong momentum they had during the first half of the year, and our Specialty Foods segment rebounded nicely under difficult operating circumstances."

For the first nine months of fiscal 2008, Hormel’s net income was $217,689,000, or $1.61 per share, compared with $200,700,000, or $1.46 per share, during the first nine months of fiscal 2007. Sales for the period were $4,893,391,000 during 2008 compared with $4,528,685,000 for fiscal 2007.

"We expect to see continued earnings pressure at Jennie-O Turkey Store from higher input costs, as the birds fed with higher grain prices make their way through the system," Mr. Ettinger said. "As stated previously, we are adjusting our full year guidance to $2.22 to $2.28 per share, which is above our prior year results of $2.17 per share last year. We continue to focus on our long-term objectives to grow the business through product innovation, increasing brand strength and adding value to our products."

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