The Numbers Are Not Tasty for Hormel

Thursday saw Hormel Foods HRL report lower-than-expected quarterly earnings. The company also forecast a “challenging operating environment” for 2012. Hormel products include Spam and Dinty Moore stew, and it becomes to latest in a long line of food companies reporting weak sales. According to Reuters, Hormel stood by its FY11 earnings forecast of $1.79 to $1.89 per share, despite the fact that shares were down 1.5 percent at $28.59 this morning on the New York Stock Exchange. The company said that net income for 1Q12 was $128.4 million, or 48 cents per share, down from $148.8 million, or 55 cents per share, a year previously. “Our first quarter earnings of 48 cents per share was the second best in our Company's history, albeit down from a year ago,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. “Sales grew six percent, with four of our five segments registering sales gains in the quarter.” “I was pleased with the strong results achieved by our Jennie-O Turkey Store segment, led by increased retail value-added sales. Our International business also delivered a solid quarter, fueled by strong export sales. Results of our Refrigerated Foods segment were hindered by significantly lower pork operating margins, and our Grocery Products segment results were adversely impacted by softer sales in the center of the store,” commented Ettinger. In a research report published on Thuesday, Deutsche Bank said that HRL reported F1Q12 (end Jan) EPS of $0.48, in line with consensus (Bloomberg Finance LP & FactSet), but below its own $0.51. “Sales increased 6% driven by price as volumes fell 2%. Co. notes softness in center of store, similar to many CAGNY participants. By segment, Grocery sales fell 3% with volumes down 6%. Demand elasticity will be a focus on the call as well as volume outlook. Profits of $44.1m below our $53m on lower volumes, higher raw material costs.” Goldman Sachs said that its fundamental take on the quarter is somewhat negative based on the softer EBIT result and simultaneous shortfall in Grocery Products and Refrigerated Foods. “Results defy the conventional view that these 2 divisions will offset each other, such that periods of weak cutout margins in Refrigerated yield lower input costs and consequently better margins for Grocery. We are encouraged by ongoing strength in Turkey, but do not expect investors to pay up the same for this earnings stream given the greater cyclical exposure vs. the rest of HRL.”