(Dow Jones) -- Hormel Foods Corp
lowered its sales and profit forecast for its current fiscal year,
warning that a disease rippling through pig herds in China is pushing
its costs higher.
African swine fever, which has forced producers
to cull tens of millions of hogs to try to stop the disease, began to
affect global hog and pork markets during the company's fiscal second
quarter, Hormel Chief Executive Jim Snee said on Thursday.
"African swine fever in China started to impact
global hog and pork markets this quarter, which led to rapidly
increasing input costs," Mr. Snee said.
Hormel said Thursday it now expects sales
between $9.5 billion and $10 billion for its current fiscal year, down
from a previous forecast of $9.7 billion to $10.2 billion.
Profit at the Austin, Minn.-based meat and food
company is now expected to range from $1.71 to $1.85 a share, down from
$1.77 to $1.91 a share.
The swine fever is not harmful to humans, but
usually is fatal to hogs. Chinese pork producers have killed millions of
hogs in an attempt to contain the disease, shifting the global market
for meat prices. Tyson Foods Inc. (TSN) said earlier this month that
consumers would start paying higher prices for meat due to the
situation.
Hormel plans to raise prices for branded
products due to the increased input costs. It warned those increases
will lag the higher expenses, resulting in crimped margins in the short
term.
Overall, Hormel reported sales for the quarter
that ended April 28 of $2.34 billion, up 0.6% compared with last year
but short of the $2.37 billion analysts polled by FactSet predicted.
Sales volumes in its refrigerated-foods
business, the company's largest, were flat. Growth in bacon, its Natural
Choice meats and prepared foods for delis were offset by double-digit
declines in sales of commodity products.
Profit rose to $282.4 million, or 52 cents a
share, from $237.4 million, or 44 cents a share, a year earlier.
Excluding a gain from the sale of the CytoSport protein business, the
company's 46 cents a share adjusted profit beat expectations by one
cent.
Hormel said Thursday that turkey products from
its Jennie-O Turkey Store business saw lower retail sales in the latest
quarter, hurting profits. Earnings in that unit also fell because the
company struggled to carry out an effort to automate a Jennie-O factory
in Minnesota.
Hormel has been working to shift its portfolio
away from so-called commodity products and toward branded items that can
command higher prices. The company has purchased organic meats company
Applegate and Columbus Craft Meats to pursue that strategy.
