Hormel Foods Corp. plans to split its stock for the first time in a decade after the shares almost doubled over the past two years, a reflection of expectations that resurgent profit across the U.S. pork industry will continue.
The company expects to split its stock two-for-one, assuming shareholders approve the action at the annual meeting Jan. 31, Hormel said in a statement today. Shares outstanding would increase to 800 million from 400 million.
Hormel had “a decade of strong performance,” chief executive officer Jeffrey Ettinger said in the statement. A split “demonstrates our confidence that we will continue to grow our sales and earnings in the future. We anticipate this will also put our stock price in a more attractive trading range for a number of individual investors.”
Companies typically split their stocks after a large run-up in the share price, and a split is often interpreted as a signal of management’s confidence in future financial prospects. Splits can also make a stock seem more affordable to smaller investors, even though the underlying value of the company hasn’t changed.
For Hormel, profit surged this year as a smaller hog herd and improved demand sent retail pork prices to record levels. Hog prices are up almost 60 percent from seven-year lows hit in August 2009, and in May reached the highest levels in almost 14 years, based on Chicago futures.
Industrywide, the nation’s pork producers are expected to have their most profitable year since 2007, said Ron Plain, an agricultural economist at the University of Missouri.
“It’s been a good year,” Plain said today, noting that average U.S. retail pork prices reached record highs for six consecutive months through October. “The margins have been good for pork processors, much better this year than last year.”
Hormel made more money this year from hogs and from selling branded pork products to supermarkets. The Austin, Minn.-based company’s brands include Spam lunch meat, Dinty Moore stew and Saag’s German-style sausage.
In Hormel’s fiscal 2010, which ended Oct. 31, net income rose to $409 million, up 19 percent from 2009. Sales rose 11 percent to $7.2 billion.
In early afternoon trading, Hormel shares were up 62 cents, or 1.2 percent, at $51.27, after reaching a record $51.35. The stock is up 34 percent over the past 12 months. Other pork processors have also had strong performances this year, with Tyson Foods Inc. stock up 37 percent over the past 12 months and Smithfield Foods Inc. up 23 percent.
The pork industry’s renewed financial health is threatened, however, by soaring feed costs that have sent next year’s profit outlook back toward break-even levels, Plain said.
Last month, corn futures surged to 26-month highs above $6 a bushel after the U.S. harvest produced lower-than-expected yields. Corn accounts for about 30 percent of the total cost of raising a pig to slaughter weight, he said.
Plain projected average pork producers’ profit for 2011 at between break-even and $5 a head, down from an estimated $15 this year. Producers lost an average of $26 a head in 2009, he said.
For 2011, “it’s looking kind of touch-and-go” for pork producer profit, Plain said. We’re expecting good hog prices. The problem is we’re looking at near-record feed costs.”
At today’s close, March corn futures in Chicago rose 14 ¼ cents to $5.88 ½ a bushel. Futures are up 66 percent since the middle of the year. February lean hog futures rose 1.175 cents to 76.25 cents a pound. June futures rose 1 cent to a contract high of 90.15 cents.