Hormel Foods Earned 46 Cents per Share

This morning, Hormel Foods (HRL) reported fiscal Q2 earnings of 46 cents per share. That beat expectations by one penny per share.

Hormel lowered its fiscal 2019 outlook. They now see sales of $9.5 billion to $10 billion. The previous guidance was $9.7 billion to $10.2 billion. They also lowered their EPS guidance to $1.71 to $1.85. The previous range was $1.77 to $1.91 per share.

Here’s the executive summary:

Volume of 1.2 billion lbs., up 1%

Record net sales of $2.3 billion, up 1%

Pretax earnings of $318 million, up 7%

Diluted earnings per share of $0.52

Excluding one-time gain on the divestiture of CytoSport, adjusted diluted EPS of $0.46 per share

Effective tax rate of 11.1% compared to 20.0% last year

Operating margin of 13.3% compared to 12.9% last year

Year-to-date cash flow from operations of $366 million, down 18% due to higher working capital

Fiscal 2019 earnings guidance decreased to $1.71 to $1.85 per share from $1.77 to $1.91 per share

COMMENTARY

“We achieved record sales this quarter as three of our four segments delivered volume and sales growth,” said Jim Snee, chairman of the board, president and chief executive officer. “Many of our innovative product lines such as Hormel® Bacon 1TM cooked bacon, Hormel® Fire BraisedTM products, Hormel® Natural Choice® snacks and Herdez® salsa delivered double-digit sales growth. We also grew core product lines such as Hormel® pepperoni, Dinty Moore® stew and Austin Blues® authentic barbeque products.”

“In spite of record sales, second quarter earnings did not meet our expectations,” Snee said. “African swine fever in China started to impact global hog and pork markets this quarter, which led to rapidly increasing input costs. In response, we have announced pricing action across our branded value-added portfolio in the Grocery Products, Refrigerated Foods and International segments.”

“Jennie-O Turkey Store profits declined due to a combination of plant startup costs and lower retail sales,” Snee said. “We made a large investment to automate our whole-bird facility in Melrose, Minn., and the startup was more difficult than anticipated. We made excellent progress through the quarter and are now on track to deliver the production efficiencies we expected. Retail sales declined for the quarter, but we are reactivating promotional activity and advertising in order to regain distribution.”

“We finalized the sale of CytoSport this quarter and used the proceeds to pay down the remaining debt from the Columbus Craft Meats acquisition and build our cash position,” Snee said. “We will use our strong balance sheet to continue to grow our company through disciplined and strategic investments, including acquisitions and capacity expansion projects.”

OUTLOOK

“Over the past three years, the intentional actions we have taken as part of Our Path Forward, which include evolving to a broader global branded food company, accelerating our foodservice business, modernizing our supply chain and divesting nonstrategic assets, has made our company stronger,” Snee said. “Our experienced management team, leading brands, focus on innovation, strong balance sheet and diversified businesses allow us to manage through times of uncertainty and volatility, as we are currently experiencing with African swine fever.”

The company’s revised fiscal 2019 earnings guidance range is based on the input cost increases experienced in the second quarter and a forecast for volatile domestic pork prices in the second half of fiscal 2019. The company has a proven ability to operate in elevated market conditions but expects short-term margin compression as branded value-added pricing actions lag input cost increases. Additionally, expectations for Jennie-O Turkey Store have been lowered as the company reinvests in the Jennie-O® brand in order to regain retail distribution.

Update: Shares of HRL fell 6.3% this morning, but later rallied back. The stock closed down 0.91% today which was less than the overall market’s drop of 1.19%.

Posted by on May 23rd, 2019 at 7:06 am


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