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Hormel Earnings Drop on Poor Spam Sales

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AUSTIN, Minn. (AP) _ Hormel Foods Corp. reported a 9 percent drop in third quarter earnings Thursday, citing lower sales of Spam and other grocery products and an excess turkey supply that lowered prices across the industry.

Hormel earned $34.7 million, or 25 cents a share, in the quarter ended July 26, down from $38.3 million, or 27 cents a share, a year earlier. Sales rose 8 percent to $1.01 billion, from $933.8 million in the third quarter of last year.

The results missed by 2 cents the consensus estimate of analysts surveyed by Thomson First Call.

``The normal seasonal strengthening of the turkey market did not happen this year because of excess inventory industrywide,'' said Joel Johnson, chairman, president and chief executive.

The Jennie-O Turkey Store segment had an operating loss of $127,000 in the quarter, compared to an operating profit of $15.4 million a year earlier.

Hormel also warned that the fourth quarter will remain difficult for the turkey business despite some signs of recovery. The company expects fourth-quarter earnings of 36 cents to 44 cents a share, well below the 51 cents analysts had been expecting.

However, Johnson called long-term prospects for Jennie-O Turkey Store products ``very promising'' and expressed confidence that the business will turn around once the turkey market oversupply clears.

Johnson said Hormel's grocery products line was hurt by higher beef and pork costs, which reduced operating profits by 8 percent. Lower sales in Chi-Chi's sauces, Dinty Moore canned foods and Spam also hurt performance, he said.

``The Spam family of products had a very strong second quarter, which I suspect led to higher than normal pantry inventories that had to be liquidated in the third quarter,'' Johnson said.

On the positive side, sales were strong for Hormel's fully cooked entrees and Hormel Always Tender fresh pork, boosting operating profits for the company's refrigerated foods by 61 percent for the quarter to $27 million.

For the first nine months, Hormel earned $115.4 million, or 83 cents a share, down 5 percent from $121.4 million, or 86 cents a share, a year earlier. Sales rose to $3.03 billion from $2.87 billion.
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