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Hormel Foods (HRL) Q4 Earnings Miss Estimates, Sales Down Y/Y

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Hormel Foods Corporation (HRL - Free Report) posted fourth-quarter fiscal 2020 results, with the top and the bottom line missing the Zacks Consensus Estimate. Also, both sales and earnings declined year over year. Results were hurt by declines in foodservice channel. Most of the company’s segments, excluding the international unit, witnessed sales declines.

Moreover, the bottom line continued to be under pressure due to escalated supply-chain costs associated with the COVID-19 pandemic. Nevertheless, the company’s performance in the quarter gained from growth in the retail and deli business channels.

Quarter in Detail

Quarterly earnings of 43 cents per share missed the Zacks Consensus Estimate of 44 cents. The bottom line declined 9% year over year. Higher supply chain costs put pressure on the company’s bottom-line performance.

Net sales in the fourth quarter were $2,420.1 million, which missed the Zacks Consensus Estimate of $2,604 million. Moreover, the top line fell 3% year over year, while organic sales went down around 4%. Sluggishness in the U.S. foodservice channel as well as declines across the company’s Grocery Products, Jennie-O Turkey Store and Refrigerated Foods segments hampered top-line results. Moreover, total sales volumes were 1,209.4 million lbs, down 2% year on year. On an organic basis, volumes were down 3%.

Channel-wise, net sales across U.S. retail, U.S. deli and International climbed up 7%, 1%, and 2%, respectively. However, net sales in U.S. foodservice channel declined 23%.

Selling, general and administrative expenses rose 3.8% to $190.7 million. Further, operating margin in the fourth quarter stood at 11.4%, down 140 basis points.

Hormel Foods Corporation Price, Consensus and EPS Surprise Hormel Foods Corporation Price, Consensus and EPS Surprise

Segment Details

Sales in the Grocery Products unit declined nearly 1% to $580.6 million. Volumes were also down 1%. The segment’s sales were affected by lower inventory levels as well as production limitations, stemming from the pandemic on certain center store products and lower sales for MegaMex foodservice items. Nevertheless, demand for center store brands such as Herdez, SKIPPY and Hormel Compleats were strong. Profits in the unit improved 1% owing to growth in the nut butter portfolio.

Net sales in the Jennie-O Turkey Store segment dropped 6% to $373.4 million, with volumes declining 2%. Sales were marred by weak demand for foodservice products. Nevertheless, sales and volumes for Jennie-O lean ground products and whole birds remained strong. Segment profit tanked 21% due to contraction in foodservice earnings. Also, high supply chain costs associated with the pandemic dented profits.

The company’s Refrigerated Foods generated sales of $1,308.8 million, down 5% year over year. Also, volumes were down 4%. Gains from growth in retail and deli brands such as Applegate, Hormel Black Label and Columbus as well as the acquisition of Sadler's Smokehouse were offset by significant decline in foodservice sales.

Moreover, sales in the unit were adversely impacted by the COVID-19 pandemic-led production limitations along with reduced inventory levels. Segment profit decreased 17% due to sluggish foodservice sales, high supply chain costs related to pandemic and lower commodity profits.

International & Other sales increased 8% to $157.2 million, while volumes fell 1%. Notably, the company saw solid global demand for SPAM luncheon meat. Higher sales in China were also an upside. Segment profit improved 55% on better results in China along with branded export growth and higher income from the company’s partners in Europe, Philippines and South Korea.


Balance Sheet & Cash Flow

The company ended the quarter with cash and cash equivalents of $1,714.3 million and long-term debt of $1,044.9 million (excluding current maturities).

In fourth-quarter fiscal 2020, Hormel Foods generated cash of $249.9 million from operating activities. Operating free cash flow amounted to $109.2 million. Management expects capital expenditures of $350 million for fiscal 2021.

In a separate release, the company announced a 5% hike in its annual dividend. As a result, the company new dividend rate currently stands at 98 cents per share. This marks the 55th consecutive year, in which the company raised its annual dividend.

We note that on Nov 16, the company paid out its 369th straight quarterly dividend of 93 cents.

Other Details

Management is impressed with growth witnessed in the international unit, as well as across certain retail and deli brands. However, the company continues to support its distributors and operators community as foodservices channel remain sluggish. Management is also cautious regarding the economic uncertainties emerging out of the resurgence of COVID-19 in certain communities.

However, the company expects to meet such challenges on the back of its strong business fundamentals across retail, deli and foodservices channels. Additionally, management expects that majority of its supply chain expenses are temporary in nature and is likely to contract when the pandemic subsides.

Additionally, this Zacks Rank #3 (Hold) company is on track with strategic investments for boosting capacity. During the fourth quarter, it carried out the Burke pizza toppings plant expansion. Additionally, the company is on track with the opening of a new dry sausage production facility for Columbus charcuterie products. Management also highlighted that it is focusing on expanding the capacity of its pepperoni business.

Price Performance

Shares of the company have declined 2.9% in the past three months compared with the industry’s growth of 2.3%.

Looking for Solid Food Stocks? Check These

United Natural Foods, Inc. (UNFI - Free Report) , which currently sports a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 4.8%, on average.. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Hain Celestial Group, Inc. (HAIN - Free Report) , with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 24.6%, on average.

Blue Apron Holdings, Inc. (APRN - Free Report) , with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 30.3%, on average.

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