Hog-Price Rally, Tight Supply May Hurt Hormel Foods Profit, Ettinger Says
Hormel Foods Corp., the maker of Spam lunchmeat, said the rising price of hogs may crimp profit.
“We expect higher hog cost to continue in the fourth quarter, negatively impacting margins in our value-added refrigerated foods businesses and in our pork-based grocery products items,” Chief Executive Officer Jeffrey M. Ettinger said today on an earnings conference call with analysts.
Hogs in the U.S. are 77 percent more expensive than a year ago, based on the national average price tracked by the U.S. Department of Agriculture. Hog futures on the Chicago Mercantile Exchange touched a 14-year high of 87.8 cents a pound on April 22 and are up 70 percent in the past year through yesterday.
The supply of hogs is down 3 percent to 4 percent globally, Chief Financial Officer Jody H. Feragen said on the call. That, along with “unprecedented demand,” has created a tight supply situation, she said.
Austin, Minnesota-based Hormel is “kind of in a wait-and- see mode” on its pricing for pork-based products, Ettinger said. The company has been “moving pricing” on hams, bacon and fresh pork “to correspond to these inflated markets,” he said.
“We’re trying to create the balance between what we’re encountering in terms of increased input costs, but also trying to be sensitive to what the consumers and our customers are looking for in terms of trying to hit certain price points,” Ettinger said.
Third-quarter net income rose 11 percent to $85.4 million, or 63 cents a share, from $77.2 million, or 57 cents, Hormel said today in a statement. Sales during the quarter ended July 25 rose 9.9 percent.
Mexico Pork
The company is “waiting to see” what impact new tariffs by Mexico will have on the company’s business, Feragen said.
Mexico, the second-largest importer of U.S. pork, will impose a tariff of 5 percent on some cuts of pork, the nation’s official gazette said this week. The duties were announced after the U.S. government failed to restore a program allowing Mexican trucks to operate north of the border.
The tariffs may cut demand in the near term, Feragen said. Mexico imported $762 million of U.S. pork last year, the biggest amount for any country except Japan, according to the U.S. National Pork Producers Council.
To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net
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