Hormel Profit Slips
It is a struggle playing out regularly for food makers these days: they need to raise prices to cover higher costs but risk losing cost-conscious shoppers.
Hormel said its total sales volume fell 7%, but higher prices helped nudge its revenue up and protect some of its profit. As a result, the company was able to deliver earnings per share that beat analyst expectations and it issued 2012 guidance above estimates, which sent its shares higher in late morning trading.
The company, based in Austin, Minn., said its net income fell to $117.3 million for the period that ended October 30. That is down from $121.1 million in the same quarter last year.
Its earnings per share were adjusted to account for a previously announced 2-for-1 stock split. There was also one less week in the current quarter.
Revenue edged up 2% to $2.1 billion but missed Wall Street’s $2.13 billion estimate.
It was the second quarter in a row that the prepared foods maker dealt with slower sales volume as a result of higher prices. Like many food makers, Hormel has raised prices on its products to offset rising costs for everything from grain to packaging.
Earlier, Tyson Foods Inc. reported that its fourth-quarter net income slipped as higher grain costs offset better prices and revenue, particularly in its chicken business.
Hormel reported that its operating profit rose in four of its five operating segments: grocery products, Jennie-O turkey, specialty foods and other products. The biggest drag for Hormel came from its refrigerated foods division, where its operating profit fell 19% because of declining pork operating margins and increased commodity costs.
The company reported that revenue rose in all but one of its segments but sales volume fell across the board.
“Clearly, in the long run, we’re looking to grow volumes of our value-added franchises,” Hormel CEO Jeffrey Ettinger said. “But as long as we continue to be in this kind of pricing environment, you will continue to see larger net sales increases; then you will see volume increases. “
Hormel’s full-year earnings rose 20% to $474.2 million, or $1.74 per share, from $395.6 million, or $1.46 per share, in the prior year. After adjusting for costs tied to the closure of a plant and other one-time items, the company earned $1.51 per share for the year versus $1.46 a year earlier.
Annual revenue increased 9% to $7.9 billion from $7.22 billion.
The company said it expects to continue to struggle with volatile raw material costs, higher grain costs and potentially a decline in its meat processing margins in the coming fiscal year. Hormel said it will continue to take strategic and modest price increases as needed to offset rising costs.
From the November 28, 2011, Prepared Foods' Daily News.