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Posted at 12:33 p.m., Thursday, August 23, 2007

Spam maker says 3rd quarter profit fell 4 percent

By Chris Williams
Associated Press

AUSTIN, Minn. — Hormel Foods Corp., the maker of Spam and other meat products, said today its third-quarter profit fell 4 percent from weakness in its chunk chicken and Chi-Chi's sauce businesses, but the company reaffirmed guidance for the fourth quarter and full year.

Net income declined to $57.4 million, or 41 cents per share, from $59.6 million, or 43 cents per share, a year ago.

Sales totaled $1.52 billion, up from $1.41 billion in the 2006 period.

Profit was in line with the revised forecast of analysts surveyed by Thomson Financial, and sales just beat Wall Street's $1.5 billion consensus estimate. Earlier this month the company lowered its profit outlook from a range of 42 to 48 cents per share to a range of 40 to 42 cents.

Hormel shares rose 39 cents, or 1.1 percent, to $34.79 today.

"I would say overall it was a mixed quarter," Jeffrey M. Ettinger, chairman, president and chief executive, said in a conference call with analysts.

"We have momentum in several of our core protein and grocery brands but have seen margin contraction in the face of commodity inflation," he said.

The company said it saw distribution gains and sales growth from its Hormel Compleats microwave trays, but part of the growth was offset by weakness in its chunk chicken and Chi-Chi's sauce businesses as ingredient costs rose.

Hormel said it still expects higher input costs to continue into the fourth quarter, but reaffirmed its previous profit outlook for the fourth quarter and full year.

The company forecasts quarterly earnings of 62 to 68 cents per share, compared with analysts' 64-cent average estimate, and $2.06 to $2.12 per share for the full year.

"This includes our expectation that higher input costs will continue to pressure grocery products margins and we expect to see a slowdown in our specialty product segment," Ettinger told analysts on a conference call this morning.

Higher corporate expenses and a bigger tax bill contributed to weaker quarter, Ettinger said, compared with last year when both costs were below average.

Analysts are predicting full-year profit of $2.08 per share.

Also today, Hormel announced it had acquired privately held Burke Corp., a manufacturer and marketer of pizza toppings, meatballs, Mexican meat fillings and breakfast meats, for about $110 million.

Chief Financial Officer Jody H. Feragen said Hormel took on some debt to buy the company, but she expected to repay the debt in the next six months from cash flow.

Ettinger said tighter credit markets could make future acquisitions easier for Hormel, with its strong balance sheet. Hormel had about $105 million in cash at the end of the quarter.

Ettinger wouldn't comment on any deals in the pipeline, but did say, "We're a generator of significant positive cash flow (and) that our shareholders don't expect us to just sit on that cash."

Feragen elaborated that it might be easier for the company to complete transactions on its terms "now that some of the fast money has gone away."

Net sales of $125 million are anticipated from Burke, and Hormel expects the deal to add to its fiscal 2008 earnings.