By EMILY FREDRIX Associated Press
MILWAUKEE (AP) -- Hormel Foods said Tuesday its fourth-quarter profit rose more than 50 percent, helped by lower ingredient costs even as sales slipped on lower meat prices and a continuing pullback in consumer spending on pricier items like microwave meals.
The company called the quarter's sales "disappointing" and blamed the weak economy. However, it said sales of Hormel chili grew. It also says it expects better earnings next year.
The maker of Spam said it earned $103.9 million, or 77 cents per share, in the three months ending Oct. 25.
Revenue fell 10 percent to $1.68 billion.
According to Thomson Reuters, analysts predicted earnings of 68 cents per share on revenue of $1.82 billion.
Hormel earned $2.53 a share for fiscal 2009 and set its 2010 outlook 10 to 20 cents higher, which is above analyst estimates. CEO Jeffrey Ettinger said the company will renew its focus on driving sales, given the drop in the fourth quarter. The company will increase its advertising spending in the new fiscal year, he said, with a new campaign for the Hormel brand in February.
Shares fell 47 cents to $38.42 in morning trading Tuesday.
Hormel, based in Austin, Minn., has benefited along with other food makers as consumers limit their spending and eat at home in response to the recession. Its lower-priced foods like its namesake chilis and its famed meat-in-a-can Spam have been rising in at least the past year as consumers look for value.
But shoppers' focus on the bottom line has hurt the company when it tries to sell more expensive products, such as microwavable meals, which can make the company more money. The company also said sales of Spam, known as a cheap food but which often costs more per ounce than some other meat like hamburger, were flat in the quarter, while Dinty Moore stews were down. Ettinger said the sluggish economy is making consumers change their behavior, so the company is trying to figure out how best to market to them.
"Now it's a little more of a mixed bag. It's a little bit of a harder read," Ettinger told analysts on a conference call.
Hormel also noted consumers limited their purchases of its higher-priced items in its Jennie-O Turkey Store, which accounts for 20 percent of net sales.
The turkey segment's performance improved in the quarter, however, marking a continuing turnaround in the meat industry. The meat industry had been hurting since at least the summer of 2008 as costs for items like corn rose to record highs and a slump in demand -- brought on by a drop in restaurant visits by consumers -- made it difficult for meat producers to raise prices.
But feed costs have fallen and producers like Hormel have been shedding production, which means they don't have to spend as much to raise meat like turkey, and can be more nimble to raise prices. Sales in that segment slipped 9.8 percent to $337.5 million, even as the company launched marketing for the Jennie-O brand in the quarter to push sales. But segment profits rose nearly 6 percent.
Revenue in refrigerated foods, which counts for about half of the company's sales, fell 9 percent to $857.2 million, although profit rose 23 percent on strong sales of more expensive products like Hormel pepperoni, the DiLusso Deli Company product lines and other products. The segment's sales were soft due to drops in demand from food-service outlets such as restaurants and falling prices for pork, ham and bacon.
For the year, the company's revenue fell 3.3 percent to $6.53 billion.
Copyright 2009 The Associated Press.