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Hormel reports record earnings in 2Q

Published 9:57am Wednesday, May 21, 2014

By Jason Schoonover and Trey Mewes, Austin Daily Herald

AUSTIN — Hormel Foods Corp. reported a record second quarter in large part thanks to its refrigerated foods and gains following its Skippy acquisition.

The Austin-based meat producer earned $140.1 million, or 52 cents per share, in 2014′s fiscal second quarter. That’s up 12 percent from last year, when the company made $125.5 million, or 46 cents per share. Sales for the quarter were $2.2 billion, up 4 percent from the same period in fiscal 2013.

“Our team achieved a record second quarter both in terms of dollar sales and earnings per share,” said President and CEO Jeffrey M. Ettinger in a written statement.  “We improved operating profit margins on a total company basis and in four of our five segments.”

A year after the original cost of Hormel’s January 2013 Skippy acquisition ate into the company’s profits, the company’s hope the peanut butter line would increase sales rang true.

The two divisions that include Skippy — grocery and international — reported increases.

“Our grocery products and international segments continued to deliver distribution gains with Skippy peanut butter this quarter,” Ettinger wrote.

The company’s grocery products division, which accounts for 17 percent of net sales, saw a 16 percent increase in operating profit, aided in part by a favorable comparison to fiscal 2013′s Skippy acquisition costs. Total segment sales were flat. Skippy peanut butter products, Hormel bacon toppings, and the Herdez line of products in the MegaMex Foods joint venture delivered sales growth, but sales of Spam products and Hormel Compleats microwave meals declined in the second quarter.

Sales in the international division, which accounts for 6 percent of net sales, increased by 23 percent, and profits increased by 34 percent. The China business delivered strong results with growth in pork and the addition of Skippy peanut butter. Segment results were also driven by strong export sales.

Sales in refrigerated foods, which accounts for exactly half of the company’s net sales, rose 10 percents, and profit increased 38 percent, as higher pork operating margins offset elevated raw material costs.

Jennie-O Turkey Store, which accounts for 17% of net sales, saw a 2 percent profit increase, but sales were down 1 percent with lower bird weights driving lower volumes. Lower live production performance and high fuel costs from the extended harsh winter offset strong commodity turkey prices and lower feed costs, the company said.

Specialty foods, which accounts for 10 percent net sales, saw a 26 percent decrease in profits from last year and 12 percent decrease in sales. Lower segment results were largely due to the July 2013 expiration of the agreement allowing Diamond Crystal Brands to sell certain sugar substitutes.

Looking ahead, Hormel plans to continues seeking growth through new products.

“Our team continues to generate growth through innovative new value-added products, such as our Hormel Bacon 1TM fully cooked bacon launched in foodservice channels this quarter by the Refrigerated Foods segment and Skippy Singles Creamy peanut butter items recently introduced by the grocery products segment,” Ettinger wrote.

However, the company stated elevated pork, beef, turkey and avocado costs are restricting margins in value-added products. The company maintained is fiscal goal of a $2.17 to $2.27 increase per share, but Ettinger expectd cost pressures to push yearly earnings toward the lower end.

“Even with these short term challenges, I am pleased with our team’s ability to deliver growth by providing consumers with valued, innovative products,” Ettinger wrote.