INTERVIEW-Hormel expects strong grocery sales to continue

Thu May 21, 2009 10:35pm IST

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* Grocery should offset weak food service business

* Shift to private label seen mostly at others' expense

CHICAGO, May 21 (Reuters) - Hormel Foods Corp (HRL.N) expects about a 15 cent-per-share growth in earnings for the second half of its fiscal year, which ends in October, as strong grocery sales should offset weak food service business, Chief Executive Jeffrey Ettinger told Reuters on Thursday.

In the second-quarter earnings report released on Thursday, the company forecast a fiscal-year profit in the upper end of its previously announced range of $2.15 to $2.25 per share.

"Our guidance is building in more of a continuation of what we have seen. Probably continued softness in food service but some good momentum within most of our retail grocery franchises," Ettinger said.

During the year-long U.S. recession, consumers are eating at home more and buying lower-cost foods. As a result, there has been some shift to lower-priced private label brands in stores from brand name items.

Ettinger said much of the shift to private label has come at the expense of regional or lower-tier brands rather than Hormel's.

Earlier on Thursday, Hormel reported a better-than-expected profit for the second quarter ended April 26 of nearly $80.4 million, or 59 cents per share. That topped year-earlier results of $77.56 million, or 56 cents.

Strong sales of Spam lunch meat, Dinty Moore stew and Mexican food products, provided much of the increase.

The larger quarterly profit even surprised Ettinger.

"It came a quarter early," he said of the higher profit. "The turn around in the Jennie-O-Turkey Store worked its way through the system a little quicker than we anticipated." On an operating basis, the Jennie-O unit earned $16.68 million, up 42 percent from $11.71 million a year ago.

Since late in 2008, U.S. poultry companies have reduced production in response to high feed costs and low meat prices. At Hormel, the cutback in its production reduced Jennie-O's sales while lifting the operating profit.

"Now our anticipation is that we will have up quarters in Q3 and Q4. We expect more of the operating segments to generate positive results on a year-over-year basis as well," said Ettinger.

In early afternoon trading, Hormel shares were up 57 cents, or 1.7 percent, at $33.52 at the New York Stock Exchange.

(Reporting by Bob Burgdorfer; Editing by Tim Dobbyn)

((bob.burgdorfer@thomsonreuters.com; +1 312 408 8723; Reuters Messaging: bob.burgdorfer.reuters.com@reuters.net))

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