May 24, 2012

 

 

Hormel Foods - the maker of Spam canned meat and Dinty Moore stew-said it was looking to its markets such as turkey and specialty foods for growth after the downturn affected its pork operations.

 

Profits at its refrigerated foods division tumbled by 25% to US$53.0million in the three months to April 29, "primarily due to lower operating margins" in pork, of which sales of commodity meat fell too.Hormel forecast that pork operating margins would remain "weaker".

 

However, the group stood by its guidance for the full year of US$1.79-1.89/share, as its branded products, such as the Jennie O'Turkey Store label, enjoyed a 50% jump in profits in the latest quarter.

 

The downbeat comments on pork are the latest in a series of negative indicators from the sector which has suffered from a rising production despite high retail prices quelling demand. While retail pork prices finished at US$3.49 per pound, 6% higher than a year before and a record high for the period, wholesale values were 5% lower.

 

The USDA said last week that recent data suggest that of all the players in the pork market chain-hog producers, packer/processors, wholesalers, retailers, and consumers, only pork retailers are not hard-hit in Q1.

 

The spreads of supermarket prices to wholesale ones grew to a record US$2.03 per pound, a factor which the USDA said was most likely down to "retailers defending their spread by favouring strong returns over sales volumes".

 

Data for April indicate that the dynamic has continued in April too, with US consumer pork prices rising by 2.8% - while wholesale prices fell 9.2%.

 

Month-on-month, wholesale values slumped 10.7%, the steepest drop since at least 1990, according to a report by Paragon Economics and Steiner Consulting.

 

Hog producers have seen hog prices decline rather than enjoy their usual spring rise. Feed costs have also been pushed to record high levels, resulting in financial losses by hog producers.

 

Hormel's group earnings for the three months to April 29 rose 16.7% to US$127.9million, on revenues up 2.8% at US$2.01billion.Earnings on per share basis came in at US$0.48, ahead of Wall Street expectations of US$0.42/share.

 

Hormel shares gained 1.7% to US$29.69 in morning deals in New York.In Chicago, lean hogs for July, the best-traded contract, stood 1.1% lower at US$0.8520 a pound.