Hormel Foods Chief Says Climbing Meat Costs Squeezed Profits

Hormel Foods Corp. (HRL), the maker of Spam lunchmeat and Bacon Bits, said an increase in meat costs reduced profits in the company’s first fiscal quarter.

Operating profit from Hormel grocery products fell 9.2 percent in the three months ended Jan. 29 from the same period a year earlier, because of higher raw-material costs, the Austin, Minnesota-based company said in a statement today. Lower profit margins on pork also cut earnings from refrigerated foods by 44 percent, Hormel said.

“What occurred this quarter that did sweep across both areas was unexpectedly high input costs,” Chief Executive Officer Jeffrey M. Ettinger said on an earnings conference call with analysts. “Whether it’s pork trim or some of the beef inputs, those areas that affect both franchises. On grocery, it affects Spam, and it affects Bacon Bits when you have those higher pork inputs, just as it does some of the items on the meat products side.”

As of midday, wholesale-beef prices surged to $1.9702 a pound, a three-month high, and are up 16 percent from a year ago, U.S. Department of Agriculture data show. Wholesale-pork prices on Feb. 15 reached 88.21 cents a pound, the highest since Dec. 19, government data show.

More expensive

Hogs (HOGSNATL) in the U.S. are 5.9 percent more expensive than a year ago, based on the national average price tracked by the USDA. U.S. pork exports rose 23 percent last year from 2010, government data show. Rising export demand drove up the price of the components that go into the benchmark price of the meat, Chief Financial Officer Jody H. Feragen said on the call. Pork exports, while not at a record, may still be strong this year, Feragen said.

First-quarter net income fell to $128.4 million, or 48 cents a share, from $148.8 million, or 55 cents, Hormel said. The company said it expects “slowly improving results” as profit margins on pork return to more normalized levels and sales improve for the grocery and meat-product units.

Cattle futures rose to a record for the 11th time this year on Feb. 22, reaching $1.315 a pound on the Chicago Mercantile Exchange. Through yesterday, the price was up 8 percent this year. Hog futures are up 7.1 percent this year and yesterday reached 90.975 cents a pound, the highest since Dec. 1.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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