Spam is a good thing. No, really. The long-derided canned meat brand is helping Hormel Foods (HRL) earn money these days. Demand for Hormel's foods such as Spam, chili, cold cuts, and other products helped all of the company's business segments grow during the first quarter of fiscal 2011.
Sales during the quarter totaled $1.92 billion, up 11 percent from the same period in fiscal 2010. Net earnings during the period came to $148.8 million, up 34 percent from $111.2 million a year earlier. Diluted earnings per share for the quarter were 55 cents compared to 41 cents per share last year.
Hormel's balanced portfolio of products, with commodity-like, value-added, and premium brands, did well. "All five segments generated year-over-year sales growth. Earnings growth was led by excellent performance by our Jennie-O Turkey Store and refrigerated foods segments," Jeffrey M. Ettinger, chairman of the board, president and chief executive officer, says in an earnings statement.
The Jennie-O Turkey Store segment had a strong quarter thanks to favorable commodity meat margins and improvements made across the entire supply chain and operations.
The company's refrigerated foods segment performed well also thanks to the robust margins pork products contribute, while sales abroad were strong as well.
The costs of inputs used to make Hormel products are going up, as are packaging and fuel, but the company has been able to pass some of that burden on to the consumer and may do so again later this year, Ettinger said in a published interview.
As always, analysts caution, keep an eye on those rising prices. "Hormel is likely to generate strong performance in most of its five operating segments," Moody's Investors Service writes in a research note.
"While we expect that economic conditions will continue to improve gradually in 2011, price competition is likely to remain intense even as input prices rise as consumers remain sensitive to retailer prices. Thus, we believe that some of Hormel's premium categories — such as the highly-competitive convenience meals — could find it difficult to generate sales growth."
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