Hormel profits down 14% due to high pork costs

The refrigerated foods segment, which accounts for 53% of the firm’s sales, suffered a 44% plunge in operating profits, caused mainly by the high costs experienced in pork. “Results of our refrigerated foods segment were hindered by significantly lower pork operating margins,”​ said Hormel’s chairman and CEO Jeffrey M Ettinger.

The segment still grew 7% in sales, boosted by Hormel’s pepperoni and deli meat products.

The company noted the strong performance of its Jennie-O Turkey Store brand, up 4% in operating profits and 4% in dollar sales, despite a 7% drop in volume. “I was pleased with the strong results achieved by our Jennie-O Turkey Store segment, led by increased retail value-added sales,”​ Ettinger added.

International operating profits went up 25% compared to Q1 2011, with flat volume and a 17% increase in sales. Ettinger said: “Our international business also delivered a solid quarter, fuelled by strong export sales.”​ Hormel added that fresh pork and its Spam range had performed the best on the export market.

The grocery segment went down 3% and 6% respectively in sales and volume, resulting in a 9% drop in operating profits. The company attributed the fall to lower volumes, which it said were “partially offset by sales growth of the MegaMex Foods joint venture”.​

Sales in the speciality foods segment increased by 14%, with a 1% rise in volume. However, operating profits went down 4%, affected by higher raw material and freight costs.

Ettinger said the company expects its meat sector to improve in the next quarter, as pork costs return to normal. “We continue to look for slowly improving results from our refrigerated foods segment as pork operating margins return to more normalised levels. Sales in our grocery products segment and meat products group should also improve, as we begin to see the effects of our new advertising campaigns, supporting our Hormel and Spam brands. ​

“As we stated in our fourth-quarter release, we anticipated a challenging operating environment this year, and for comparisons to be more difficult in the first half of the year and to become more favourable in the back half,”​ he said.