Hormel's 2Q profit beats, convenience sales up

Sales of Hormel foods like Spam, Dinty Moore stews and Chi-Chi's Mexican products climbed more in the fiscal second quarter, the company said Thursday as it reported a 4 percent rise in profit that was far better than analysts were expecting.

Sales of those value-priced items have been rising at least since last year as shoppers look to cut their grocery bills. In the latest quarter, brands like Spam and Hormel Chili posted double-digit sales increases. Some have come to see sales of Spam as an economic indicator _ if sales go up, that signals weakness because consumers are trying to save money.

But analysts say a rise in sales of Hormel's higher-priced convenience items in the latest quarter could likewise illustrate consumer sentiment. Those gains are reversing slumps from last year, showing that discretionary spending may be on the uptick, KeyBanc Capital Markets analyst Akshay Jagdale said.

Austin, Minn.-based Hormel Food Corp. said sales of its Compleats microwave meals grew in the quarter _ though it didn't say by how much.

Sales of the meals, which are unrefrigerated, had been growing 30 percent to 40 percent annually for the past four years until last summer, when sales fell, Chairman and Chief Executive Jeffrey M. Ettinger said. Consumers looking to cut costs spurned the products, as they did other higher-priced convenience brands, pushing the line down by double digits since then.

But now sales are rising, he said, as Hormel plays up the line's relative value _ $2.79 for a 10-ounce microwavable meal like beef and potatoes.

"We always did feel that those items did represent a good value to consumers," Ettinger said in an interview. "I think we did a better job of communicating that in the quarter."

It could also mean the economic situation is improving for consumers, who are looking to spend a bit more money and not give up on convenience, Jagdale said. He said analysts did not expect that line's sales to pick up again so soon.

"People have always wanted more convenience," he said. "That's a trend that's here to stay. But convenience comes at a price and that tradeoff was not as attractive as it used to be last quarter. But now it's back to being attractive."

Ettinger said Hormel will keep marketing its convenience products, and also keep focusing on its value brands like Spam. The company is expanding its advertising campaign for the meat-in-a-can this summer and relaunching the brand's Web site. Following on last year's campaign _ the first for Spam in several years _ that reintroduced the brand, the ads will give consumers tips on how to use Spam in their daily cooking.

"They tie Spam with other commonly used in the pantry-type items," Ettinger said.

Marketing spending will be in line with last year, but Hormel expects its presence to increase because advertising rates have fallen.

Hormel earned $80.4 million, or 59 cents per share, for the period ended April 26, up from $77.6 million, or 56 cents per share, a year earlier. Analysts surveyed by Thomson Reuters, whose estimates generally exclude one-time items, predicted a profit of 50 cents per share.

Sales were essentially flat at $1.6 billion, missing Wall Street's estimate of $1.68 billion. The company saw weak results from the foodservice division even as sales in its grocery products division, which includes Spam and Dinty Moore, rose 4 percent.

Shares rose 72 cents, or 2 percent, to $33.67 in afternoon trading Thursday.

The company said its better-than-expected first half means it now expects full-year profit to come in at the upper end of its earlier estimates. Hormel said it expects earning at the upper end of its prior guidance of $2.15 to $2.25 per share. Analysts expected $2.24.

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AP Retail Writer Michelle Chapman in New York contributed to this report.