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Hormel skips a beat; 2Q earnings down 2 percent after Skippy buy

Published 10:30am Thursday, May 23, 2013

Company to lose Splenda, close Ohio plant

AUSTIN — Hormel is already reaping the benefits of its Skippy acquisition, but for now, the original cost of the purchase has eaten into the company’s profits.

Hormel Foods Corp. hopes Skippy will add $370 million in sales in its first full year, but the company had a one-time, $9 million cost associated with the buy. Couple that with higher grain costs and weaker turkey prices, and it’s not surprising Hormel finished the second quarter of 2013 with a 2 percent drop in net income.

The Austin-based meat producer earned $125.5 million, or 46 cents per share, for the three months ended April 28. That compares with $127.9 million, or 48 cents per share, a year earlier.

Its quarterly performance missed Wall Street’s expectations, as analysts predicted earnings of 49 cents per share, according to a FactSet survey.

But the two divisions that include Skippy — grocery and international — reported a 49 and 21 percent increase in sales, respectively, from the second quarter of 2012. Excluding Skippy and the Don Miguel Mexican brand from the grocery division, sales were only up 4 percent, and excluding Skippy from the international division, sales increased by just 4 percent from last year.

Revenue rose 7 percent to $2.15 billion from $2.01 billion, but fell short of the $2.19 billion that Wall Street expected.

Revenue from the refrigerated foods segment, which comprises nearly half of Hormel’s total revenue, fell 2 percent to $1.01 billion due to increased grain costs.

Revenue from Jennie-O Turkey Store, which makes up 18 percent of revenue, declined about 2 percent to $384.7 million on higher grain costs and weaker commodity turkey prices.

“We were pleased to deliver sales and volume growth despite harvest reductions in both our refrigerated foods and Jennie-O Turkey Store operations,” said Hormel President and CEO Jeff Ettinger in a news release.

Grocery products revenue, which includes Spam and makes up 18 percent of total revenue, climbed 49 percent to $393.5 million thanks to the Skippy transaction and better sales of products such as Dinty Moore stew, Spam and Mary Kitchen hash.

Specialty foods revenue increased 7 percent to $245.7 million, while international and other revenue rose 21 percent to $117.4 million partly because of increased sales of Spam products.

The company still foresees full-year earnings of $1.93 to $2.03 per share. Analysts expect $1.99 per share.

Hormel shares finished at $42.40 on Wednesday. They have traded in a 52-week range of $27.28 to $43.17.

“We are pleased with the growth being demonstrated by our grocery products and international segment, and anticipate continued success for those segments going forward,” Ettinger said.

Total annual sales for Skippy are expected to be about $370 million, with nearly $100 million of those sales outside the U.S. Hormel officially closed on the Skippy acquisition from Unilever on Jan. 31 domestically, and plans to close on the sale in China by the end of the fiscal year.

The company is also expecting a solid performance from its new line of Rev snack wraps, which come in eight varieties, during the second half of the fiscal year. Ettinger said they will launch a significant advertising campaign for the product in July.

Hormel is also looking for even better performance from its international division, as it expands heavily into the Asian market with Spam and Skippy.

Ettinger also announced that Hormel will close its Diamond Crystal plant in Perrysburg, Ohio, after it loses its agreement with Diamond Crystal to sell the Splenda sweetener brand on June 30. The plant, which will shut down before August, employs 126 workers. Diamond Crystal is in Hormel’s specialty foods division, and Ettinger said the loss of Splenda will significantly impact that division’s sales and profit this year.

—The Associated Press contributed to this report.