Hormel Foods Corporation (HRL Quick QuoteHRL - Free Report) delivered drab fourth-quarter fiscal 2023 results as it operated amid tough conditions toward the end of the year. In the fourth quarter, the top and bottom lines declined year over year and came below the Zacks Consensus Estimate. Strength in the Foodservice segment was more than countered by challenges in the Retail and International units.

Management continues to move through a dynamic operating landscape, including sluggish consumer demand, inflationary hurdles and challenges in the company’s turkey business. However, it remains focused on making growth-oriented investments in fiscal 2024. HRL is steadfast in its commitment to strategic priorities, transformational efforts, modernization initiatives and an innovative pipeline. The company aims to conclude fiscal year 2024 with strong momentum in all business segments.

Hormel Foods recently highlighted its six strategic priorities at its Investor Day. These include enhancing its focus and fueling growth in the Retail unit, reinforcing leadership in Foodservice, pursuing solid global expansion, implementing the enterprise entertaining & snacking vision, emphasizing the One Supply Chain initiative and continuing the ongoing transformation and modernization of the business.

Quarter in Detail

Hormel Foods’ adjusted earnings of 42 cents per share missed the Zacks Consensus Estimate of 45 cents.  Earnings came in at 51 cents per share in the same period last year.

Net sales of $3,198.1 million declined 2.6% year over year and came below the Zacks Consensus Estimate of $3,259 million.

The adjusted gross profit declined 9% year over year to $515.4 million. Our model suggested a 6.1% decrease in the adjusted gross profit to $531.9 million. Adjusted SG&A expenses grew 1.6% to $209.8 million.

Adjusted operating income of $313.1 million tumbled 14.7% year over year. The adjusted operating margin came in at 9.8%, down from the 11.2% reported in the year-ago period. We had expected an adjusted operating margin contraction of 120 basis points to 10% for the quarter under review.

Segmental Details

Net sales in the Retail unit decreased 4% year over year to $1,983.3 million. Volumes were down 3%. Softness in convenient meals and proteins, as well as snacking and entertaining verticals, more than offset the growth in value-added meats, emerging brands and bacon verticals. Adjusted segment profit went down 26% in the quarter.

Net sales in the Foodservice segment increased 2.2% to $1,032.4 million, with volumes up 5%. The upside was backed by considerable recovery in the Jennie-O turkey portfolio, along with solid demand for premium bacon, pizza toppings and premium breakfast sausage. The Cafe H, Austin Blues and Hormel Cure 81 brands also witnessed a rise in sales and volumes. Adjusted segment profit jumped around 13% in the quarter.

Net sales in the International unit fell 12% year over year to $182.5 million, whereas volumes rose 5%. The sales decline resulted in reduced branded export sales and soft sales in China. The volume increase was backed by low-margin turkey and commodity fresh pork. Adjusted segment profit went down 67%.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $736.5 million and total long-term debt (including current maturities) of $3.3 billion.

In fiscal 2023, cash flow from operations was roughly $1 billion, while capital expenditures were $270 million. The company paid out dividends worth $593 million and repurchased 0.3 million shares for a total of $12 million. As of the current authorization, HRL has the capacity to buy back nearly 3.7 million shares.

The company recently raised its dividend for fiscal 2024 by 3%, taking it to $1.13 per share. This marked the 58th straight yearly increase in HRL’s annual dividend.

Guidance

Fiscal 2024 sales are anticipated to grow 1-3%. This guidance assumes volume increases in core categories, greater brand support and innovation, gains from additional pricing actions and current expectations for raw material input costs.

Management envisions fiscal 2024 adjusted earnings per share in the $1.51-$1.65 range compared with $1.61 delivered in fiscal 2023. Hormel Foods anticipates the bottom line to decline in the first half of fiscal 2024 due to soft turkey markets, reduced volumes in the Retail segment and weakness in the company’s China business. However, management expects segment profit increases from all three units in the back half of the fiscal.

Shares of this Zacks Rank #4 (Sell) company have tumbled 18.8% in the past three months compared with the industry’s decline of 13.8%.

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