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Hormel Foods' (HRL) Q3 Earnings Beat Estimates, Sales Increase

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Hormel Foods Corporation (HRL - Free Report) posted impressive third-quarter fiscal 2021 results, with the top and the bottom line increasing year over year. Net sales and earnings surpassed the Zacks Consensus Estimate. The company saw growth across all segment and channels in the quarter. However, it encountered major inflationary pressure in most areas like raw materials, packaging, freight, labor and many other inputs. The company expects to report record sales and improved margin in the fourth quarter.

Quarter in Detail

Adjusted earnings of 39 cents per share came ahead of the Zacks Consensus Estimate of 38 cents per share. The metric increased 5% from the year-ago quarter’s reported figure.

Net sales in the quarter were $2,863.7 million, which surpassed the Zacks Consensus Estimate of $2,690.6 million. The top line increased 20% year over year, while organic net sales were up 14%. Net sales increased across all segments as well as channels. Volumes were 1.2 billion lbs, up 1% year on year. However, organic volume declined 2%.

Channel-wise, net sales across U.S. Retail, U.S. Foodservice, U.S. Deli and International moved up 9%, 45%, 12% and 36% respectively, in the quarter.

Hormel Foods Corporation Price, Consensus and EPS Surprise

 

Hormel Foods Corporation Price, Consensus and EPS Surprise

Hormel Foods Corporation price-consensus-eps-surprise-chart | Hormel Foods Corporation Quote

 

Selling, general and administrative expenses rose 25% due to one-time acquisition costs and accounting adjustments related to the acquisition of the Planters snack nuts business. Advertising expenditures amounted to $31 million, up from $24 million reported in the year-ago quarter. Operating margin in the quarter stood at 7.2%, down from 10.5% reported in the year-ago quarter. The downside in margins was a result of increased raw material costs.

Segment Details

Net sales in the Grocery Products unit increased 20% to $698.6 million, while organic net sales were flat year over year. Volumes were up 4%. Net sales and volumes gained from the inclusion of the Planters snack nuts business. Organic sales benefited from strength in brands like SPAM, Hormel Compleats and Wholly, which offset the impacts of reduced contract manufacturing sales. Profits in the unit inched up 1%.

Net sales in the Jennie-O Turkey Store segment rallied 22% to $350.9 million, while volumes rose 9%. Upside in sales and volumes was backed by improved foodservice, whole bird and commodity shipments. However, segment profit tanked 17% due to a major rise in feed costs and freight expenses.

The company’s Refrigerated Foods generated net sales of $1,624.6 million, up 19% year over year. Organic net sales in the segment increased 18%. Sales were backed by growth in foodservice as well as retail and deli businesses. Also, higher pricing across most categories was an upside. However, volumes fell 2% due to reduced shipments of commodity pork. Segment profit remained flat year over year.

International & Other net sales increased 26% to $189.5 million, while organic net sales rallied 24%. Volumes were up 2%, while organic volumes moved up 1%. Sales were backed by solid sales growth from SPAM luncheon meat, rebound in foodservice exports, consistent strength in China as well as better performance in Brazil. Profits in the unit increased 18%.

Balance Sheet & Cash Flow

The Zacks Rank #2 (Buy) company ended the quarter with cash and cash equivalents of $291.4 million. Total debt increased to $3.3 billion compared with $1.3 billion at the beginning of the year. For the 13-weeks ended Jul 25, 2021, Hormel Foods generated cash of $76.5 million from operating activities.

On Aug 16, 2021, the company paid out its 372nd straight quarterly dividend at an annual rate of 98 cents per share.

Capital expenditures in the third quarter amounted to $54 million. Management expects capital expenditures of $260 million for fiscal 2021, which includes major projects like pepperoni capacity expansion in Nebraska among others.

Other Details

In June 2021, the company concluded the Planters snack nuts business. During the third quarter, the company recorded more than $40 million in acquisition costs and accounting adjustments associated with the buyout.

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Outlook

Hormel Foods raised its sales guidance, while lowering the earnings per share view. Both views reflect the complete impact of the Planters snack nuts business buyout. The company’s earnings per share (EPS) view takes into account the impact of inflationary pressures on the business.

Management now projects fiscal 2021 net sales in the range of $11-$11.2 billion, up from $10.2-$10.8 billion projected before. EPS is now envisioned in the range of $1.65-$1.69. Earlier, the company had expected EPS in the band of $1.70-$1.82.

Shares of company have declined 8% in the past three months compared with the industry’s fall of 3.6%.

Top 3 Picks

Pilgrim’s Pride Corporation (PPC - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of almost 34%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sanderson Farms, Inc. , currently sporting a Zacks Rank #1, has long-term EPS growth rate of 36%.

Sysco Corporation (SYY - Free Report) , currently carrying a Zacks Rank #2, has long-term EPS growth rate of 9%.

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