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Hormel Foods (HRL) Q4 Earnings Match Estimates, Sales Miss

Zacks Equity Research

Hormel Foods Corporation HRL posted fourth-quarter fiscal 2019 results, wherein both top and bottom lines declined year over year and sales missed the Zacks Consensus Estimate.

Results were negatively impacted by sales declines at the International and Grocery units, which more than offset strength in the Refrigerated Foods unit. The company continues to witness input cost inflation, stemming from the African swine fever and global trade volatility.

Quarter in Detail

Quarterly earnings of 47 cents per share came in line with the Zacks Consensus Estimate. However, the bottom line fell 2% year over year due to lower sales and increased effective tax rate.

Net sales came in at $2,501.5 million, which fell short of the Zacks Consensus Estimate of $2,516 million. Moreover, the top line dropped approximately 1% year over year, which can be accountable to sales declines at the International and Grocery units. Notably, organic sales grew 2% year over year.

Hormel Foods witnessed a 2% drop in volumes, which rose almost 1% on an organic basis.

Selling, general and administrative expenses declined 10.5% to $183.8 million. Operating margin expanded 10 bps to 12.8%.

Segment Details

Sales in the Grocery Products unit decreased about 10% to $584.1 million and volumes declined 9%, due to the divestiture of CytoSport. However, organic sales rose as gains from SPAM and Herdez compensated for weakness at Skippy. Further, operating profit grew 2.3% to $80.9 million.

Revenues in the Jennie-O Turkey Store segment rose 2.6% to $398.5 million, with volumes rising 5%. Softness in retail sales was more than offset by improvements at the commodity and whole-bird businesses. Operating profit grew 5.9% to $41 million, owing to reduced freight expenses and operational gains.

The company’s Refrigerated Foods segment generated sales of $1,373 million, up roughly 4% year over year. Also, volumes rose 1%. The upside was fueled by products like Hormel Bacon 1 and Hormel Fire Braised, as well as retail sales of Hormel Black Label, Columbus, Hormel Natural Choice, Applegate and Hormel Gatherings. Operating profit decreased 2.7% to $189.3 million, due to increased operational costs and lower commodity profits.

International & Other revenues declined 12.3% to $145.9 million. Additionally, volumes decreased 14%. Results were marred by softness in branded and fresh exports. Also, the company’s Brazilian business delivered a weak performance. Operating profit plunged 29.6% to $17.5 million on account of elevated input costs in China and Brazil. This, in turn, stemmed from escalated pork prices owing to the African swine fever.

Balance Sheet & Cash Flow

The company, which shares space with Pilgrim’s Pride PPC, ended the quarter with cash and cash equivalents of $672.9 million and long-term debt of $250 million (excluding current maturities).

In fiscal 2019, Hormel Foods generated cash of roughly $923 million from operating activities. Capital expenditure summed $294 million in the fiscal. Management expects capital expenditure of $360 million for fiscal 2020.

In fiscal 2019, the company repurchased 4.3 million shares for $174 million. Further, the company paid out dividends worth $437 million. Management also announced an 11% hike in annual dividend, taking the same to 93 cents per share.

Outlook

Hormel Foods is pleased with the strength in the Refrigerated Foods segment. It expects to see operating income and sales growth in fiscal 2020. The company is particularly encouraged about prospects of SPAM, Wholly, Jennie-O, Hormel Natural Choice, Hormel Gatherings, SKIPPY, Herdez, Columbus, Hormel Bacon 1 and Applegate.

However, the company continues to battle headwinds related to the African swine fever and global trade volatility. Also, it expects elevated protein prices for fiscal 2020.

All Said, Hormel Foods anticipates net sales of $9.5-$10.3 billion for fiscal 2020 compared with $9.5 billion reported in fiscal 2019. Earnings are likely to be $1.69-1.83 per share compared with $1.80 reported in fiscal 2019. The Zacks Consensus Estimate for earnings is pegged at $1.78 per share.

This Zacks Rank #4 (Sell) stock has declined 3% in the past year against the industry’s growth of 26.4%.

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