Hormel Foods profit up 7.2 percent in first quarter, raises earnings targets
MINNEAPOLIS – Hormel Foods Corp., maker of Spam spiced ham and Jennie-O turkey, said Monday that its first-quarter profit grew 7.2 percent as acquisitions helped boost revenue by 11 percent.The company also increased its earnings guidance for the second quarter and full year, citing lower pork prices, which will reduce its costs for products such as ham and chili. However, Hormel also predicted that more turkeys would come to market later in the year, which could drive down the prices it can charge for turkey products.Net income for the quarter ended Jan. 29 rose to $69.3 million, or 50 cents per share, from $64.6 million, or 46 cents per share, a year earlier. The results included a 5-cents-per-share charge for stock options, a tax benefit, and a charge for expenses related to executive retirements. Former CEO Joel W. Johnson retired Jan. 1.Sales totaled $1.42 billion, up from $1.27 billion a year earlier. Excluding acquisitions, sales grew 1 percent.On average, analysts surveyed by Thomson Financial forecast a quarterly profit of 48 cents on sales of $1.38 billion.”We obviously believe that we had a solid first quarter that gets us off to a good start in 2006,” said President and Chief Executive Jeffrey M. Ettinger on a conference call with analysts. “For the rest of the year, we do anticipate challenges from higher distribution and energy costs,” and he added that beating the strong performance of its turkey segment last year will be tough.Ettinger didn’t comment on a question about whether Hormel would be interested in buying the Butterball turkey brand from ConAgra Foods Inc., which said earlier this month that it would sell off its refrigerated meats business. Butterball is a key competitor to Hormel’s Jennie-O Turkey Store turkey.Analyst Bill Chappell of Suntrust Robinson Humphrey said the two could be a good fit, but said Hormel could be held back if it follows its reputation for discipline in how much it’s willing to pay for acquisitions.Stephens Inc. analyst Farha Aslam wasn’t so sure that the expected surge in pork and turkey availability – and the way that’ll drive down prices – will be good for Hormel. She said a “mountain of meat” is set to enter the U.S. market, and reduced her rating on the stock.”We anticipate that the operating environment in the protein space will become increasingly difficult over the next few months,” she wrote in a research note.Earnings are now pegged at 42 cents to 48 cents per share for the second quarter and $1.90 to $2 per share for the year, up from prior guidance of $1.86 to $1.96 per share for fiscal 2006.According to Thomson Financial, analysts had expected Hormel to earn 45 cents per share in the second quarter and $1.94 per share for the year.Hormel shares rose 5 cents to $34.51 in afternoon trading on the New York Stock Exchange, after briefly rising to a new 52-week high of $36.17 earlier in the session.