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Hormel Foods' 3rd-Quarter Results: Key Takeaways for Investors

GuruFocus.com
·3 min read

- By Mayank Marwah

Hormel Foods (NYSE:HRL) released its fiscal third-quarter 2020 results before the market opened on Aug. 25. Both earnings and revenue edged past Zacks' consensus estimate.

By the numbers

The owner of brands such as Jennie-O-Turkey, Spam and Skippy posted EPS of $0.37, which was flat from the year-ago quarter and surpassed expectations of $0.33 per share. Revenue came in at $2.4 billion, up 4% year-over-year. Analysts had projected revenue of $2.3 billion.


Organic net sales jumped 2% on a year-over-year basis. While the company's volume jumped 4% in the quarter, it climbed 3% on an organic basis.

Reflecting on the company's performance, Chairman and CEO Jim Snee said:


"We had an excellent third quarter with strength across our retail and deli businesses, along with a rebound in our foodservice business. The intentional balance we have built across our portfolio has once again enabled us to generate stable cash flows in a very dynamic time period, even as we absorbed significant incremental costs in our supply chain due to the COVID-19 pandemic."



At the end of the quarter, the company had cash and cash equivalents of $1,729.4 million and long-term debt of $1,046.8 million (barring current maturities).

Segment performance

In the Grocery products division, sales were up 8% to $580.8 million. In addition, volume increased 6% owing to robust demand for branded retail products. This was partially offset by the divestiture of CytoSport. The segment also witnessed a growth in its organic sales, which was mainly driven by solid performance of Skippy peanut butter, Hormel chili and Hormel Compleats microwave meals. Profit in the segment grew 36%.

The Jennie-O-Turkey segment saw revenue decrease 4% to $286.8 million. Revenue decline was attributed to weak performance at commodity and whole-bird businesses. Volume dipped 9%, while segment profit plunged 67% to due to mounting manufacturing expenses.

In the Refrigerated Foods sector, the company experienced sales decline of 5% to $1.363 billion while volume surged 8% year-over-year. Strong sales of products like Hormel Black Label bacon, Applegate and Columbus, coupled with contributions from the Sadler's Smokehouse buyout, countered a severe fall in foodservice sales. By contrast, profits tanked 11% due to high coronavirus-related costs.

Worldwide and Other revenue stood at $150.8 million in the third quarter, up 2%. Volume dropped 5% during the same period. Sales were fuelled by strong demand for SPAM lunchmeat as well as other branded exports, which more than offset low fresh pork export sales. High sales in China and income from affiliates aided segment profit, which soared 26%.

Mounting costs

During the third quarter, the company incurred roughly $40 million in additional costs in the supply chain, associated with low production volumes, employee hazard pay bonuses and improving safety measures across the company's facilities. Year-to-date, these costs totalled $60 million.

The company predicts incremental supply chain related costs of $80-$100 million in fiscal 2020.The company claims to be financially stable and that it will be able to navigate through the situation until the circumstances improve.

Guidance

The company pulled its guidance for fiscal 2020.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.