* Adjusted Q2 EPS 67 cents vs Street view 61 cents
* Raises FY 2010 EPS forecast
* Sees higher hog costs during remainder of year
* Shares fall 2.3 percent (Adds executive comment; updates shares)
By Jessica Wohl
CHICAGO, May 19 (Reuters) - Hormel Foods Corp (HRL.N) posted a better-than-expected quarterly earnings on Wednesday as sales improved, and the maker of Spam lunch meat raised its full-year profit forecast despite higher hog costs.
The beat on second-quarter profits accounted for much of the increase to the full-year profit forecast, and shares of the company, which also sells Jennie-O turkey and Natural Choice meats, fell 2.3 percent to $40.81.
Parts of Hormel's business, particularly canned goods, saw sales rise when the recession set in. But other areas, such as the convenience-oriented Compleats line of meals sold in stores and its food service business, came under pressure as shoppers sought better value and ate more meals at home.
Food service sales were flat during the latest quarter following a year of declines, Chairman and Chief Executive Jeffrey Ettinger told Reuters.
"That already is a more positive signal," he said, while cautioning that further improvement likely would be gradual.
Sales of Hormel's Austin Blues barbecued meats and other branded and value-added products have turned up, he said. And while sales to destination resorts remain very weak, sales to hospitals and other institutions are stronger.
If people start dining out more, businesses host more conferences and other parts of the food service category rebound, Hormel stands to benefit as four of its five businesses have food service elements, he said.
"We are not hearing from the food service marketplace that the clouds have all parted and everything is excellent now," Ettinger said on a conference call with analysts.
The company earned $77.9 million, or 57 cents a share, in the fiscal second quarter ended April 25, down from $80.4 million, or 59 cents a share, a year earlier.
Excluding charges related to a plant closure and the tax impact of new healthcare laws, adjusted earnings were 67 cents per share, topping analysts' average forecast of 61 cents, according to Thomson Reuters I/B/E/S.
Sales rose 7 percent to $1.7 billion, topping analysts' average forecast of $1.62 billion.
Sales rose in each of the company's five units and were helped by items like Hormel chili as consumers ate more meals at home. The volume of food sold rose 2 percent.
Adjusted operating profit fell 2 percent in the grocery products segment due to higher protein costs.
Hormel said it expects higher hog costs to persist during the remainder of the year.
In late March, the U.S. Department of Agriculture reported the U.S. hog herd as of March 1 was down 3 percent from a year earlier, while analysts had expected a 2 percent decline. That report also showed there would be 4 percent fewer hogs this summer.
Hormel now expects adjusted earnings of $2.75 to $2.85 per share this year, up from a prior forecast of $2.68 to $2.78. Analysts have been calling for $2.75 per share.
Hormel expects advertising spending to rise in dollar terms this year, but remain in line with 2009 levels as a percentage of sales, Chief Financial Officer Jody Feragen said.
The company now expects capital expenditures of $105 million to $115 million this year, down from a February forecast of $135 million to $140 million. Some projects are not happening as quickly as anticipated, Feragen said.
Hormel shares are up almost 6 percent this year, versus the nearly 9 percent gain in the Standard & Poor's 1500 Packaged Food index. .15GSPFOOD (Reporting by Jessica Wohl, Brad Dorfman and Lisa Baertlein; editing by Dave Zimmerman and John Wallace)