Hormel Foods Corp. on Thursday reported higher third-quarter results, but a 15% drop in the operating profit of its largest segment weighed on the stock. Shares of the Austin, Minn.-based maker of Spam, Dinty Moore and other food products ended the day down $1.56, or 4.1%, to $36.43. Hormel (HRL) posted net earnings of $59.6 million, or 43 cents a share, for the three months ended July 30, compared with $51.8 million, or 37 cents, earned in the year-earlier third quarter.

Revenue for the period rose to $1.41 billion from the prior year's $1.36 billion. Analysts had been looking, on average, for a profit of 42 cents a share on revenue of $1.41 billion, according to estimates compiled by Thomson First Call. The company's own forecast, issued in May, was for net earnings in the range of 39 cents to 45 cents a share.

Hormel's specialty foods and grocery products accounted for the largest jump in quarterly sales, rising by 9.9% and 9.6%, respectively. Jennie-O Turkey Store sales ticked up fractionally, while sales in its largest segment, refrigerated foods, were up 2.2%. But a sharp rise in pork costs sent the operating profit of its refrigerated foods segment down 15% in the quarter, as pricing was unable to keep up with the increase in raw material costs. The operating profit of specialty foods surged 45%, but this segment accounted for just 10% of Hormel's net sales, while refrigerated foods accounted for 53%.

"The problem, in three words, in our view, is higher hog prices," Prudential Equity analyst John McMillin, who maintained a neutral weight rating on Hormel shares, said in a research note. Hormel in late May had lifted its earnings forecast for fiscal 2006 to $1.94 to $2.04 a share but modified that on Thursday to a range of $1.98 to $2.04.

The company also said fourth-quarter earnings should reach 57 cents to 63 cents a share. First Call-derived average profit estimates are for 60 cents a share in fourth quarter and $2.01 a share for the year.

ThePoultrySite News Desk