Hormel expects profits to rise from each of its divisions

Hormel expects profits to rise from each of its divisions

Hormel Foods is targeting higher profits from all its five divisions during its new financial year, chief executive Jeff Ettinger said today (23 November) after the US food group booked an almost 17% rise in full-year earnings.

Earlier today, Ettinger said Hormel, the maker of Compleats ready-meals and Spam tinned meat, had had "a strong finish" to its fiscal year, with sales and earnings growth accelerating during the company's fourth quarter, which ended on 31 October.

Hormel's increase in profits in its fourth quarter and over the financial year as a whole was driven by higher earnings from its Jennie-O Turkey Store and refrigerated food divisions.

In the fourth quarter, Hormel said operating profit from Jennie-O Turkey Store had leapt 90% due to efficiency gains, higher commodity turkey prices and a hedging gain on grain prices. Operating profit from its refrigerated division, meanwhile, was up 22% on the back of a 26% increase in sales.

However, operating profit from Hormel's grocery products, which includes Compleats and Spam, and from its international arm fell over the quarter and over the year. Profit from Hormel's speciality foods business, which includes sugar substitutes, was down during the fourth quarter but up over the year.

Speaking to analysts after Hormel filed its results, Ettinger said the company expected profits to grow across all five of its divisions during the new financial year.

"My expectation is that all five elements will be up," Ettinger said. "We're looking at modest gains from refrigerated and Jennie-O. We're looking at a far more typical gain from speciality foods - high single digits for them. Our expectations for international are of solid, double-digit growth. We're expecting a good year for grocery."

Hormel's international business makes up the bulk of its "all other" division on a reporting basis. The division accounts for 4% of sales and operating profit but saw input costs hit exports in the fourth quarter, which reduced earnings by 3%.

"The last couple of years have not been as strong and we're expecting to get back on track," Ettinger said of Hormel's international business. "The difficulty the division has had in the last couple of years has been the run-up in hog costs. The sales of Spam have been fantastic."

Ettinger said Hormel would raise the price on its Spam brand internationally to cover rising costs and revealed the company would make a similar move domestically. However, the Hormel boss said the group would not raise prices on all products due to the fragile economic climate.

"In terms of raw-material inputs, we are going to take an action on Spam that will be effective at the beginning of the second quarter," Ettinger said. "We're evaluating our portfolio. When we take pricing action, it's going to be in the 3-4% range but we're not going to take it on every item."

US food manufacturers are facing rising commodity costs at a time of still-weak consumer sentiment. Ettinger said the consumer of Hormel's products has been "strong" but added: "Clearly, the overall economy is quite mixed."