Earnings Highlights and Review: Hormel Foods’ Quarterly Results Lagged behind Expectations

LONDON, UK / ACCESSWIRE / June 16, 2017 / Pro-Trader Daily publishes post-earnings coverage on Hormel Foods Corp. (NYSE: HRL) following the Company’s announcement of its second quarter fiscal 2017 financial results on May 25, 2017. The maker of Spam canned ham, Dinty Moore stew, and other foods reported a y-o-y decline in sales and earnings attributed to divestitures and performance decline at its Jennie-O Turkey Store segment. Our daily stock reports are accessible for free, and with those to look forward today you also will be signing up for a complimentary member’s account at: http://protraderdaily.com/register/.

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Earnings Reviewed

For the thirteen weeks ended April 30, 2017, Hormel’s sales totaled $2.19 billion, a 5% decrease compared to net sales of $2.30 billion in Q2 FY16. The Company’s volume for the reported quarter was 1.14 billion pounds, down 11% on a y-o-y basis. Excluding the acquisition of Justin’s and the sale of Diamond Crystal and Farmer John, Hormel’s adjusted volume increased 0.6% and adjusted sales increased 2%. Analysts were expecting sales of $2.22 billion.

For Q2 FY17, Hormel reported gross profit of $486.92 million compared to gross profit of $526.36 million in Q2 FY16. The Company’s depreciation and amortization for the reported quarter was $32 million, unchanged from last year. Hormel is forecasting depreciation and amortization to be approximately $125 million for FY17. The Company’s equity and earnings for the reported quarter was $10 million, up 6% on a y-o-y basis, driven by strong results from MegaMex, including the HERDEZ and Wholly Guacamole brands. For Q2 FY17, Hormel recorded operating income of $316.03 million compared to operating income of $323.82 million in Q2 FY16.

Hormel posted Q2 FY17 net income of $210.9 million, or $0.39 per share, compared with net income of $215.4 million, or $0.40 per share, in Q2 FY16. The Company’s earnings numbers missed Wall Street’s expectations of $0.39 per share.

Segment Results

During Q2 FY17, Hormel’s Grocery Products segment, which constitutes 20% of total net sales and 24% of total operating profit, reported that sales increased 7.7% to $432.21 million, while operating profit jumped 15.5% to $77.49 million. The increase was attributed to the addition of JUSTIN’S® specialty nut butters as well as the strong performance of WHOLLY GUACAMOLE® dips and SPAM® luncheon meat.

The Company’s Refrigerated Foods section, which is the biggest contributor to the overall Company’s business and which represents 47% of net sales and 40% of total segment’s operating profit, reported that sales declined 5.9% on a y-o-y basis to $1.03 billion, operating profit increased marginally by 0.1% to $130.19 million, while volume dropped 14%, primarily related to the divestiture of the Farmer John business. Excluding the divestiture, the segment’s adjusted sales grew 5% and adjusted volume was up 1%, attributed to strong performance from retail and foodservice value-added products.

During Q2 FY17, Hormel’s Jennie-O Turkey Store, which contributes 18% of net sales and 20% of operating profit, reported that volume declined 6% to 203.56 million pounds, sales declined 8.3% to $388.24 million, while its operating profit tumbled 28.9% to $63.79 million, primarily due to lower turkey commodity prices, pricing pressure from competing proteins, and increased operating expenses.

Hormel’s Specialty Foods sales declined 23.6% to $208.21 million and the segment’s profit dropped 16.4% to $30.81 million in Q2 FY17, primarily related to the divestiture of Diamond Crystal Brands in May 2016 and reduced contract packaging sales. Excluding the divestiture of Diamond Crystal Brands, the segment’s adjusted sales were flat.

For Q2 FY17, the Company’s International sales rose 19.0% to $131.17 million, while operating profit surged 37.7% to $19.62 million. Strong exports of fresh pork and SPAM® luncheon meats contributed to growth.

Share Repurchases and Dividends

During Q2 FY17, Hormel’s cash flow from operations was $84 million, down from $130 million in Q2 FY16. The decrease was primarily related to changes in working capital. The Company’s capital expenditures totaled $39 million in the reported quarter compared to $66 million in the prior year’s same quarter. The Company is expecting capital expenditures to be approximately $100 million-$190 million in FY17.

In the reported quarter, Hormel paid its 355th consecutive quarterly dividend effective May 15 at the annual rate of $0.68 per share. The Company repurchased 547,000 shares of common stock, spending $19 million. Hormel has 12 million shares remaining from the current authorization.

Outlook

Hormel reiterated its fiscal 2017 earnings guidance range to be $1.65 to $1.71 per share, however, the Company noted that it expects the results at Jennie-O Turkey Store to push the Company’s full-year earnings toward the lower-end of this range.

Stock Performance

On Thursday, June 15, 2017, the stock closed the trading session at $34.60, marginally down 0.35% from its previous closing price of $34.72. A total volume of 2.28 million shares have exchanged hands, which was higher than the 3-month average volume of 2.16 million shares. Hormel Foods’ stock price advanced 1.23% in the last one month, and 1.23% in the previous twelve months. The stock is trading at a PE ratio of 21.12 and has a dividend yield of 1.97%. The stock currently has a market cap of $18.73 billion.

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