Hormel 2Q rises on lower costs, maintains outlook

Because the first half of the year shaped up stronger than it had expected, Hormel said it was sticking by its full-year guidance despite rising energy expenses. It plans to cut turkey production by 5 percent because of energy and feed costs. Hormel has been raising prices but it's been hard to keep up with feed and fuel costs.

"The second half is looking probably a little more challenging than we had expected in the beginning of the year," Chairman, President, and Chief Executive Jeffrey M. Ettinger said on a conference call with analysts.

Hormel shares dropped $1.59, or 3.9 percent, to $39.39.

Austin, Minn.-based Hormel Foods Corp. said its second-quarter profit rose to $77.6 million, or 56 cents per share, up from $68 million, or 49 cents per share, a year earlier. Sales rose almost 6 percent to $1.59 billion, from $1.5 billion a year earlier.

Thomson Financial said analysts expected a profit of 55 cents per share on sales of $1.58 billion for the quarter, which ended April 27.

Hormel said Spam canned meat sales and profits were helped by promotions, national advertising, and wider distribution of individually packaged "Spam Singles" slices.

More than half of Hormel revenue comes from its refrigerated foods division, where operating profits rose nearly 26 percent to $55.6 million. This is where Hormel saw much of the benefit of lower pork prices.

But feed and energy prices are making for a murky outlook at Hormel, as at other foodmakers. Ettinger said the low hog prices that helped the second quarter began to run up earlier than usual in the spring. If the increase lasts, it threatens to put some of the same pressure on Hormel's pork-related businesses as its Jennie-O Turkey Store, where operating profits dropped 16 percent to $11.7 million.

Feed accounts for 70 percent of the cost of raising turkeys and hogs. Hormel has moved to cut turkey production by 5 percent, but that won't begin to help until its next fiscal year, Ettinger said in an interview. In the meantime Jennie-O will be wrestling with making money on turkeys that were fed $6-a-bushel corn.

"We will see added pressure on that part of the business. We think our other units will continue to operate well and will continue to generate positive results," Ettinger said.

Hormel stood by its 2008 profit forecast of $2.30 to $2.40 per share. Analysts expect $2.37 per share.

For the first half of the year, Hormel earned $165.7 million, or $1.20 per share, up from $143.3 million, or $1.03 per share, during the same period a year ago. Revenue rose to $3.22 billion, from $3.01 billion during the same period last year.