Hormel Foods Corporation ( HRL Quick Quote HRL - Free Report) posted soft results in the second quarter of fiscal 2023 as both the top and bottom lines declined year over year, and the former fell short of the Zacks Consensus Estimate. Results were particularly soft in the Retail and International segments, while bottom-line growth in the Foodservice unit and improved costs in some areas were upsides. Hormel Foods is on track with the implementation of its GoFWD operating model. Management reaffirmed its fiscal 2023 guidance. Quarter in Detail
Hormel Foods’ earnings of 40 cents per share came a penny ahead of the Zacks Consensus Estimate However, the metric declined from 48 cents reported in the year-ago quarter.
Net sales in the quarter were $2,977.6 million compared to the Zacks Consensus Estimate of $3,063 million. The top line decreased 3.8% from $3,096.6 million reported in the year-ago quarter.
The gross profit declined to $491.4 million from $553.5 million reported in the year-ago quarter. SG&A expenses came in at $212.5 million compared with $224.7 million reported in the year-ago quarter. Advertising spending amounted to $35 million in the second quarter of fiscal 2023 compared with $39 million last year. Hormel Foods’ operating income of $295.8 million declined from $334.7 million in the year-ago period. The operating margin came in at 9.9% in the quarter under review, down from 10.8% recorded in the prior-year period. Segment Details
Management stated that volumes and net sales decreased in each segment due to reduced turkey availability stemming from the ongoing effects of the increased pathogenic avian influenza in HRL’s vertically integrated turkey supply chain.
Net sales in the Retail unit decreased 4.2% year over year to $1,916.2 million. Higher sales from the global flavor vertical were more than countered by declines in all other retail verticals. Volumes in the segment fell 7.1%. The segmental profit went down 19.4% in the quarter. Net sales in the Foodservice segment fell 3.1% to $881.4 million, while volumes dropped 1.3%. The decline in net sales can be somewhat attributed to reduced turkey volumes and lower net pricing in some categories (due to commodity deflation), partly made up by net sales growth in the sliced meats, pizza toppings and premium breakfast sausage categories. The segmental profit went up 7% in the quarter. Net sales in the International unit fell 3.2% year over year to roughly $180 million on reduced sales in China and a decline in commodity export sales. That said, higher volumes and net sales from SKIPPY and Planters brands, together with strength in Brazil, were a breather. However, volumes in the segment went down 3.8%. The segmental profit went down 49.9%. Financial Details
The company ended the quarter with cash and cash equivalents of $580.5 million and long-term debt, less current maturities, of $3,294.4 million.
In the quarter that ended Apr 30, 2023, net cash provided by operating activities was $208.1 million, and capital expenditures totaled $54 million. Management expects to incur capital expenditures of $280 million in fiscal 2023. Hormel Foods repurchased 0.3 million shares for $12 million in the second quarter. Guidance
Hormel Foods anticipates seeing top-and-bottom-line growth in the back half of fiscal 2023. It expects to see sustained growth in the Foodservice unit and inflection in the International segment. HRL expects all its businesses to gain from increased turkey volumes and better fill rates in key categories, including bacon, pepperoni, snack nuts and SPAM products.
HRL is encouraged about the progress with its GoFWD strategy. Also, it is on track to lower costs and enhance the margin structure through various projects. All said, Hormel Foods reiterated its view for fiscal 2023, wherein it projects net sales growth in the band of 1-3% from the fiscal 2022 level. Earnings per share are envisioned in the range of $1.70-$1.82. Shares of this Zacks Rank #4 (Sell) company have slipped 19.7% in the past six months compared with the industry’s drop of 20.1%. Solid Food Bets
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