Hormel Foods Corp.'s second-quarter profit climbed 41 percent on strong performance of its refrigerated foods and Jennie-O Turkey business, while higher commodity costs cut into its other lines.
The company, based in Austin, Minn., raised its full-year earnings outlook Wednesday based on the results.
Hormel, like many food makers, has been coping with higher costs on everything from grain to fuel and has raised its prices to offset that pressure. The company said that it expects to face higher costs for the rest of the year and will continue to raise prices and cut costs to maintain its profitability.
"We believe our strong portfolio of brands and our balanced model will allow us to overcome those obstacles," said CEO Jeffrey Ettinger.
Hormel earned $109.6 million, or 40 cents per share, for the quarter that ended May 1. That's up from $77.9 million, or 29 cents per share, a year ago. Analysts expected a slightly higher 41 cents per share, according to Fact Set.
Revenue increased 15 percent to $1.96 billion, beating the $1.82 billion analysts predicted.
Hormel made the gains on both pricing increases and sales volume growth. The company's refrigerated foods business, which makes up more than half its revenue, was one of its top performers. Revenue rose nearly 17 percent as shoppers bought more Hormel party trays and deli meats. Jennie-O's revenue rose 25 percent, helped by cost cuts and stronger commodity meat markets.
The company struggled more in grocery products, where revenue rose only 1.4 percent. Sales of products like Span and Dinty Moore stew were strong, while microwave products and imported canned meats were weaker. The segment's profitability fell on higher input costs.
Similarly, its specialty foods revenue rose a more modest 4 percent, while operating profit was hindered by higher raw material costs.
Hormel now expects full-year net income of $1.67 to $1.73 per share, up from prior guidance of $1.62 to $1.68 per share. Analysts expect $1.71 per share.
Investors, however, were concerned about Hormel's ability to sustain this kind of growth given the volatility of commodity prices. Standard & Poor's Equity Research lowered its opinion on Hormel's shares to "Sell" from "Hold," saying it has increased concern about profitability pressures on Hormel's pork and turkey businessd, given changes in grain prices.
Hormel CEO Jeff Ettinger said the company was able to adjust prices accordingly to cope with these changes but like the rest of the industry, does face some uncertainty in commodities. But he remains focused on longer-term growth drivers such as expanding products lines, production and popularity with shoppers.
Shares of Hormel fell $2.31, nearly 8 percent, to $27.71 in midmorning trading.
AP Business Writer Mae Anderson contributed to this report from New York.