Hormel 4Q profit rises 50 percent, but sales slip

AP News
Posted: Nov 24, 2009 4:59 PM

Hormel Foods Inc. plans to boost its advertising next year to persuade cash-strapped shoppers to pay extra for its pricier items, like microwave meals, as they keep looking for ways to cut costs in the downturn.

The maker of Spam and Dinty Moore stews said Tuesday this increasing thriftiness by consumers made for "disappointing" sales in the fourth quarter. But profit rose more than 50 percent, helped by lower ingredient costs and improving conditions in the company's Jennie-O Turkey store. The company also said it expects better earnings next year.

Hormel, based in Austin, Minn., has benefited along with other food makers as consumers eat at home more to save money. Sales of its lower-priced foods like Dinty Moore stews and famed meat-in-a-can Spam have been rising in at least the past year as consumers look for value, though sales were soft in the fourth quarter when compared with high growth in last year's quarter.

The company hasn't been as lucky when it comes to selling more expensive products, such is its Compleats microwavable meals, whose main value to consumers is convenience but command a premium price.

CEO Jeffrey Ettinger said Hormel will renew its focus on driving sales, given the drop in the fourth quarter and increase advertising spending in the new fiscal year. A new campaign for the Hormel brand is set to launch in February.

"Our mission then becomes explain to a consumer for an item like Compleats why it really still is an excellent value, a 300-calorie meal in a mid-$2 range," he told The Associated Press in an interview.

That could be a tough sell. They're trading down to cheaper store brands and other lower-priced options, and that doesn't seem to be abating, said Edward Jones analyst Matt Arnold.

"Across the portfolio, anything that had value-added where the consumer had to pay for it, there's softness there," he said. "The consumer is just less willing to pay for that."

Hormel also noted consumers limited their purchases of its higher-priced items in its Jennie-O Turkey Store, which accounts for 20 percent of net sales. That came even as the company rolled out a new campaign to support the brand.

The turkey segment's performance improved in the quarter, however, marking a continuing turnaround in the meat industry. The meat industry had been hurting since at least the summer of 2008 as costs for items like corn rose to record highs and a slump in demand _ brought on by a drop in restaurant visits _ made it difficult for meat producers to raise prices.

But feed costs have fallen and producers like Hormel have been shedding production, which means they don't have to spend as much to raise meat like turkey, and can be more nimble to raise prices. Sales in that segment slipped 9.8 percent to $337.5 million, but segment profits rose nearly 6 percent.

Overall, Hormel earned $103.9 million, or 77 cents per share, in the quarter ending Oct. 25. Revenue fell 10 percent to $1.68 billion.

According to Thomson Reuters, analysts predicted earnings of 68 cents per share on revenue of $1.82 billion.

Hormel earned $2.53 a share for fiscal 2009, while revenue fell 3.3 percent to $6.53 billion. The company set its 2010 outlook 10 to 20 cents higher than 2009 results, which is above analyst estimates.

Shares fell 64 cents, or 1.7 percent, to close at $38.25 Tuesday after climbing to a 52-week high of $40.46 earlier in the session.