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Hormel Foods Reports Mixed 2nd-Quarter Results

Hormel Foods (NYSE:HRL) released its fiscal second-quarter 2020 results before the market opened on May 21. While sales edged past Zacks' consensus estimate, earnings fell short.

By the numbers

The owner of brands such as Jennie-O-Turkey, Spam and Skippy posted earnings of $0.42 per share, which declined 8.7% from the year-ago quarter and missed expectations of $0.44 per share. Revenue came in at $2.42 billion, up 3.28% year-over-year. Analysts had projected revenue of $2.37 billion.

Organic net sales jumped 6% on a year-over-year basis. While the company's volume jumped 4% in the quarter, the same climbed 7% on an organic basis.

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

"Our financial results this quarter demonstrate the value of our balanced business model and our team's ability to react to a rapidly changing environment," Snee said. "We continue to excel and gain market share in channels that are open and available to us, namely the retail channel. We know consumers are looking for trusted brands, and we will continue investing in our leading brands such as SPAM, SKIPPY, Jennie-O, Hormel Natural Choice and Applegate."

At the end of the quarter, the company had cash and cash equivalents of $606.1 million and long-term debt of $56.9 million (barring current maturities).

Segment performance

In the Grocery products division, sales were up 8% to $683.3 million. In addition, volume increased 7% 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 amounted to $127.8 million, which reflected a growth of 22.3%.

The Jennie-O-Turkey segment saw revenue increase 12% to $330.1 million. Revenue growth was attributed to strong performance at commodity and whole-bird businesses. Volume rose 19%, while segment profit increased 54.1% to $27.3 million.

In the Refrigerated Foods sector, the company experienced sales decline of 1% to $1.247 billion while volume remained flat year-over-year. Strong sales of products like Hormel Black Label bacon, Applegate natural and organic meat and Hormel pepperoni, coupled with contributions from the Sadler's Smokehouse buyout, could not fully offset a severe fall in foodservice sales. Profit totalled $131.4 million, a decline of 16.9%.

Worldwide and Other revenue stood at $148.8 million in the second quarter, up 1.7%. Volume dropped 2% during the same period. Sales were fuelled by strong demand for SPAM lunchmeat as well as other branded exports, which more than offset the low foodservice sales (especially in China). Higher branded export margin and income from affiliates aided segment profit, which soared 62% to $23.2 million.

Mounting costs

During the second quarter, the company incurred roughly $20 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. Moreover, the company has announced bonuses exceeding $11 million for all workers in the production units.

The company predicts incremental costs of $60-$80 million in the second half of the year. The company claims to be financially stable and that it will be able to navigate through the situation until the circumstances improve.


The company pulled its guidance for fiscal 2020 due to the global uncertainty caused by the coronavirus pandemic.

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

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This article first appeared on GuruFocus.