Hormel Posts Record Profit Despite Bird Flu

11:55PM May 20, 2015
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Hormel reported a record second-quarter profit of $180.2 million Wednesday despite a bird flu scourge that has cost producers nearly 8 million turkeys and chickens in its home base of Minnesota alone.

It warned, however, that the ensuing supply shortage would drag on sales for the remainder of the year.

Hormel's Jennie-O Turkey Store business is the country's No. 2 turkey processor, close behind Butterball.

The company's quarterly per-share profit of 67 cents was a nickel better than Wall Street had expected, according to poll by Zacks Investment Research.

Investors shrugged off concerns about bird flu, sending shares up more than 4 percent in midday trading.

The maker of Spam and Dinty Moore stew had revenue of $2.28 billion, which fell short of analyst projections for $2.41 billion.

CEO Jeffrey Ettinger said during a conference call that operating profits at Jennie-O rose 41 percent on a 15 percent increase in sales even as bird flu outbreaks afflict about 55 farms in Minnesota and Wisconsin that supply it with turkeys. Robust sales of turkey coupled with lower grain and fuel prices helped offset the flu's impact, he said.

However, supply disruptions will cut Jennie-O's second-half sales by 15 percent and force it to buy turkey from outside suppliers at higher costs, Ettinger said.

"This sizable estimated loss of volume is not only due to bird loses over the past month but also takes into account the fact that many of our barns remain empty under quarantine," Ettinger said.

According to the U.S. Department of Agriculture, confirmed outbreaks of H5N2 avian influenza have cost turkey and chicken egg producers around 38 million birds in 15 states since early March, mostly in Minnesota, the country's top turkey producing state, and Iowa, the top U.S. egg producer. The actual toll is significantly higher because the USDA's count doesn't include several recently discovered farms with presumptive positive test results.

Ettinger affirmed Hormel's previous full-year earnings estimate of $2.50 to $2.60 per share. But he said profits probably will be near the lower end of that range. The company would have likely revised its estimate upward if not for bird flu, he said.

"Our balanced business provides Hormel Foods the ability to navigate challenges such as this year's unprecedented turkey supply shortage and continue to deliver consistent growth over the long term," Ettinger said.

Shares of Hormel Foods Corp., based in Austin, Minnesota, rose $2.42 to $58.21.