Hormel Foods Corporation (HRL - Free Report) posted third-quarter fiscal 2019 results, wherein both top and bottom lines beat the Zacks Consensus Estimate and the latter marked its fifth successive beat. However, both metrics declined year over year.
Results were negatively impacted by CytoSport’s divestiture. Moreover, dismal Grocery Products results more than offset strength in the Refrigerated Foods unit, which managed to stay afloat despite the input cost inflation stemming from the African Swine fever. Grocery Products earnings were marred by elevated avocado costs and weak results for Skippy peanut butter spreads venture.
Quarter in Detail
Quarterly earnings of 37 cents per share came ahead of the Zacks Consensus Estimate of 35 cents. However, the bottom line fell nearly 5% year over year due to the increased effective tax rate.
Net sales came in at $2,290.7 million, which surpassed the Zacks Consensus Estimate of $2,285 million. However, the top line descended about 3% year over year due to weak Grocery unit performance. Also, organic sales were flat year over year.
Hormel Foods witnessed a 4% drop in volumes, due to soft volumes across most segments.
Sales in the Grocery Products unit decreased about 11% to $543.1 million and volumes declined 10%, due to the divestiture of CytoSport. However, organic sales rose as gains from SPAM, Don Miguel, Dinty Moore and Herdez compensated for sales decline at Skippy. Further, operating profit plunged about 30% to $58.8 million due to CytoSport’s divestiture, considerably high avocado costs and unfavorable pricing of Skippy peanut butter.
Revenues in the Jennie-O Turkey Store segment lost 5.5% to $298.8 million, with volumes declining 4%. Softness in retail and foodservice sales was a deterrent, partly offset by improvements at the commodity and whole-bird businesses. Operating profit declined 8.7% to $21.3 million due to reduced sales.
The company’s Refrigerated Foods segment generated sales of $ 1,301.1 million, up roughly 1% year over year. The upside was fueled by products like Hormel Bacon 1, Hormel Fire Braised and Old Smokehouse as well as retail sales of Hormel Black Label and Columbus. Volumes dipped due to higher pricing on value-added products. Operating profit increased 13.1% to $171.8 million, courtesy of higher profitability for value-added items, lower operational costs and increased commodity profits.
International & Other revenues were nearly flat at $147.7 million. Also, volumes remained nearly flat. CytoSport’s divestiture was offset by better results in China. Operating profit rose 0.6% to nearly $18.8 million on account of improvements in China.
Selling, general and administrative expenses declined, courtesy of reduced employee-related costs and effects of CytoSport’s divestiture.
Operating margin increased 30 bps to 11.2%.
Balance Sheet/Cash Flow
The company, which shares space with Pilgrim’s Pride (PPC - Free Report) , ended the quarter with cash and cash equivalents of $560.2 million and long-term debt of $250 million (excluding current maturities).
In the first nine months of fiscal 2019, Hormel Foods generated cash of $572.9 million from operating activities. Capital expenditure summed $67 million in the third quarter.
During the quarter, the company repurchased 2.7 million shares for nearly $107 million. On Aug 15, the company paid out dividend at an annual rate of 84 cents per share.
Hormel Foods is pleased with its earnings performance, as it managed to respond promptly to the changing market conditions. Further, the company’s strong pricing, efficient promotions and prudent innovation drove its performance. However, it continues to bear the impacts of African Swine fever. Thus, it is yet to see continued increased pork prices. Also, Hormel Foods is battling input cost inflation and expects this volatility to increase.
We expect the Refrigerated Foods segment to continue benefiting from its value-added growth, effective pricing and innovation. However, fourth-quarter earnings in the Grocery Products unit is expected to bear the brunt of elevated avocado prices and dynamics at the peanut butter category.
All Said, Hormel Foods reiterated its outlook for fiscal 2019, wherein it expects net sales of $9.5-$10 billion. Further, earnings are anticipated to be $1.71-1.85 per share.
This Zacks Rank #3 (Hold) stock has gained nearly 12% in the past three months compared with the industry’s growth of 31.3%.
Check These Solid Food Stocks
General Mills (GIS - Free Report) , with a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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