Hormel Foods (HRL) cut its full-year outlook after it saw higher input costs in its fiscal second quarter and said it expects pork prices to be volatile in the second half of fiscal 2019.
The Austin, Minn.-based food company cut its per-share earnings guidance for the year to $1.71 to $1.85 from its previous view of $1.77 to $1.91. It now expects revenue between $9.5 billion to $10 billion, down from $9.7 billion to $10.2 billion before.
For the quarter, Hormel reported adjusted diluted per-share earnings of $0.46, two cents above the diluted EPS result in the prior-year period. Capital IQ had expected $0.45. Revenue was $2.34 billion, just ahead of last year’s $2.33 billion and the Street’s view of $2.37 billion.
Shares of Hormel were trading 2.9% lower in early trading.
“In spite of record sales, second-quarter earnings did not meet our expectations,” said Chief Executive Jim Snee, adding that many of Hormel’s products lines saw double-digit sales growth. “African swine fever in China started to impact global hog and pork markets this quarter, which led to rapidly increasing input costs.”
Snee said it has announced “pricing action” in its grocery products, refrigerated foods and international businesses in response to the African swine fever outbreak.
The viral disease spreads through domestic and wild pigs and has no approved vaccine, according to the World Organisation for Animal Health. While there is no risk to human health, the fever is highly contagious and in its latest report covering April 26 to May 9, the group said there were a total of 1,377 ongoing outbreaks in Asia, Europe and Africa, with 157 new outbreaks reported from 121 in the preceding period.
Profit at Hormel’s Jennie-O Turkey business dropped 45% on higher-than-expected startup costs as it works to automate its whole-bird plant in Melrose, Minn. and lower retail sales, Snee said. “We made excellent progress through the quarter and are now on track to deliver the production efficiencies we expected,” he added.
Snee said the company is “reactivating promotional activity and advertising in order to regain distribution.”
Hormel said profit at its grocery segment rose 12%, led by sales increases of its Herdez salsa line, Wholly guacamole dips and Skippy peanut butter.
Meanwhile, profit at its refrigerated foods segment fell 5%, weighed down by a 65% drop in commodity profit. International profit dropped 31% due to tariffs on fresh pork exports as well as increased freight costs.