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Hormel Foods' (HRL) Q2 Earnings Match Estimates, Sales Grow Y/Y
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Hormel Foods Corporation (HRL - Free Report) posted second-quarter fiscal 2021 results, wherein the bottom line was in line with the year-ago period’s reported figure. Markedly, the top line increased year over year and beat the Zacks Consensus Estimate. Results were backed by robust foodservice sales, elevated retail, deli and international demand, and better supply-chain performance.
We note that the retail and deli channel demand was mainly backed by brands like SPAM, Jennie-O, Hormel Gatherings, Hormel Black Label, Applegate, Columbus, Herdez and Wholly. Also, international business was driven by solid growth in China as well as branded exports. Apart from these, the company is now gaining on the pre-pandemic period’s efforts to raise production, mainly for the pizza toppings and dry sausage categories. Impressively, management raised its sales guidance for fiscal 2021.
Quarter in Detail
Quarterly earnings of 42 cents per share came in line with the Zacks Consensus Estimate, as well as the year-ago period’s reported figure.
Hormel Foods Corporation Price, Consensus and EPS Surprise
Net sales in the quarter were $2,606.6 million, which surpassed the Zacks Consensus Estimate of $2,420 million. Moreover, the top line increased 8% year over year. Sales grew across all segments, except Grocery Products. However, volumes were 1.2 billion lbs, down 3% year on year.
Channel-wise, net sales across U.S. foodservice, U.S. deli and International increased 28%, 4% and 11%, respectively. Meanwhile, net sales in the U.S. retail channel remained flat year over year.
Selling, general and administrative expenses rose 3% to nearly $200 million owing to employee-related costs. Advertising expenditure amounted to $31 million. Operating margin in the quarter stood at 11.1%, down from 12.1% reported in the year-ago quarter. The downside was a result of increased raw material and feed costs.
Segment Details
Net sales in the Grocery Products unit fell 8.1% to $628.2 million. Also, volumes were down 14%. Sales and volumes were affected by tough comparisons with exceptionally high demand last year. Nonetheless, demand for branded retail products remained higher than pre-pandemic periods, buoyed by increases in Wholly guacamole and Herdez salsas and sauces. Profits in the unit dropped 23% due to soft sales.
Net sales in the Jennie-O Turkey Store segment inched up 2.4% to $351.2 million, while volumes declined 3%. Upside in sales was backed by a revival in foodservice sales and increased whole bird shipments. While retail sales declined year over year, it was higher than pre-COVI19 levels. Segment profit tanked 54% due to a major rise in feed costs.
The company’s Refrigerated Foods generated sales of $1,453.4 million, up 16.5% year over year. Further, volumes grew 3%. Sales were backed by growth in retail and deli brands, elevated commodity sales and considerable foodservice recovery.
Almost all foodservice categories witnessed growth, steered by pizza toppings, as well as brands like Fontanini and Hormel Bacon 1. Hormel Black Label, Hormel Gatherings, Sadlers and Applegate brands boosted retail and deli sales growth. Segment profit jumped 32%, thanks to strength in foodservice, reduced operational costs and higher retail fresh pork profits.
International & Other sales increased 16.8% to $173.8 million, while volumes were flat. Sales were backed by continued strength in China, as well as solid sales of branded exports. Incidentally, foodservice sales in China have reverted to pre-pandemic periods. Segment profit rose 6% on growth in China and the Philippines, along with increased fresh pork export margins.
Balance Sheet & Cash Flow
The company ended the quarter with cash and cash equivalents of $1,484.5 million. Total debt declined to $1 billion compared with $1.3 billion at the beginning of the year. For the 13-weeks ended Apr 25, 2021, Hormel Foods generated cash of $155.6 million from operating activities.
On May 17, 2021, the company paid out its 371st straight quarterly dividend, at an annual rate of $0.98 per share. Further, the company made share buybacks of $1 million during the quarter.
Capital expenditures in the second quarter amounted to $45 million. Management expects capital expenditures of $260 million for fiscal 2021, which includes major projects like Project Orion and pepperoni capacity expansion in Nebraska, among others. These are aimed at supporting the growth of branded products.
Other Details
During the quarter, the company absorbed nearly $15 million in direct incremental supply-chain costs mainly related to better safety measures in its manufacturing facilities amid the pandemic. In the year-to-date period, these costs amounted to $19 million. Management expects these temporary costs to minimize after COVID-19 subsides.
In February 2021, the company inked a deal to buy the Planters snack nuts business, which is expected to conclude in June. Management anticipates financing the deal through cash, short-term and long-term debt.
Outlook
Management remains optimistic about the foodservice industry. Also, it expects to keep witnessing high demand in the retail, deli and international channels. While the company is witnessing inflation, it expects to combat margin pressure with supply-chain enhancements and pricing.
All said, Hormel Foods pulled up its sales guidance while reaffirming its earnings per share view. Both views do not include impacts from the pending buyout of Planters’ snacks nuts business.
Management now projects fiscal 2021 net sales in the range of $10.2-$10.8 billion, up from $9.70-$10.30 billion projected before. Earnings per share are still envisioned in a band of $1.70-$1.82. The Zacks Consensus Estimate for sales and earnings is currently pegged at $10.2 billion and $1.73 per share, respectively.
Shares of this Zacks Rank #4 (Sell) company have declined 2.3% in the past three months against the industry’s growth of 3.1%.
United Natural (UNFI - Free Report) has a Zacks Rank #2 (Buy) and its bottom line outpaced the Zacks Consensus Estimate by 13.6% in the trailing four quarters, on average.
Pilgrim’s Pride (PPC - Free Report) has a Zacks Rank #2 and a long-term earnings per share growth rate of 27%.
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Hormel Foods' (HRL) Q2 Earnings Match Estimates, Sales Grow Y/Y
Hormel Foods Corporation (HRL - Free Report) posted second-quarter fiscal 2021 results, wherein the bottom line was in line with the year-ago period’s reported figure. Markedly, the top line increased year over year and beat the Zacks Consensus Estimate. Results were backed by robust foodservice sales, elevated retail, deli and international demand, and better supply-chain performance.
We note that the retail and deli channel demand was mainly backed by brands like SPAM, Jennie-O, Hormel Gatherings, Hormel Black Label, Applegate, Columbus, Herdez and Wholly. Also, international business was driven by solid growth in China as well as branded exports. Apart from these, the company is now gaining on the pre-pandemic period’s efforts to raise production, mainly for the pizza toppings and dry sausage categories. Impressively, management raised its sales guidance for fiscal 2021.
Quarter in Detail
Quarterly earnings of 42 cents per share came in line with the Zacks Consensus Estimate, as well as the year-ago period’s reported figure.
Hormel Foods Corporation Price, Consensus and EPS Surprise
Hormel Foods Corporation price-consensus-eps-surprise-chart | Hormel Foods Corporation Quote
Net sales in the quarter were $2,606.6 million, which surpassed the Zacks Consensus Estimate of $2,420 million. Moreover, the top line increased 8% year over year. Sales grew across all segments, except Grocery Products. However, volumes were 1.2 billion lbs, down 3% year on year.
Channel-wise, net sales across U.S. foodservice, U.S. deli and International increased 28%, 4% and 11%, respectively. Meanwhile, net sales in the U.S. retail channel remained flat year over year.
Selling, general and administrative expenses rose 3% to nearly $200 million owing to employee-related costs. Advertising expenditure amounted to $31 million. Operating margin in the quarter stood at 11.1%, down from 12.1% reported in the year-ago quarter. The downside was a result of increased raw material and feed costs.
Segment Details
Net sales in the Grocery Products unit fell 8.1% to $628.2 million. Also, volumes were down 14%. Sales and volumes were affected by tough comparisons with exceptionally high demand last year. Nonetheless, demand for branded retail products remained higher than pre-pandemic periods, buoyed by increases in Wholly guacamole and Herdez salsas and sauces. Profits in the unit dropped 23% due to soft sales.
Net sales in the Jennie-O Turkey Store segment inched up 2.4% to $351.2 million, while volumes declined 3%. Upside in sales was backed by a revival in foodservice sales and increased whole bird shipments. While retail sales declined year over year, it was higher than pre-COVI19 levels. Segment profit tanked 54% due to a major rise in feed costs.
The company’s Refrigerated Foods generated sales of $1,453.4 million, up 16.5% year over year. Further, volumes grew 3%. Sales were backed by growth in retail and deli brands, elevated commodity sales and considerable foodservice recovery.
Almost all foodservice categories witnessed growth, steered by pizza toppings, as well as brands like Fontanini and Hormel Bacon 1. Hormel Black Label, Hormel Gatherings, Sadlers and Applegate brands boosted retail and deli sales growth. Segment profit jumped 32%, thanks to strength in foodservice, reduced operational costs and higher retail fresh pork profits.
International & Other sales increased 16.8% to $173.8 million, while volumes were flat. Sales were backed by continued strength in China, as well as solid sales of branded exports. Incidentally, foodservice sales in China have reverted to pre-pandemic periods. Segment profit rose 6% on growth in China and the Philippines, along with increased fresh pork export margins.
Balance Sheet & Cash Flow
The company ended the quarter with cash and cash equivalents of $1,484.5 million. Total debt declined to $1 billion compared with $1.3 billion at the beginning of the year. For the 13-weeks ended Apr 25, 2021, Hormel Foods generated cash of $155.6 million from operating activities.
On May 17, 2021, the company paid out its 371st straight quarterly dividend, at an annual rate of $0.98 per share. Further, the company made share buybacks of $1 million during the quarter.
Capital expenditures in the second quarter amounted to $45 million. Management expects capital expenditures of $260 million for fiscal 2021, which includes major projects like Project Orion and pepperoni capacity expansion in Nebraska, among others. These are aimed at supporting the growth of branded products.
Other Details
During the quarter, the company absorbed nearly $15 million in direct incremental supply-chain costs mainly related to better safety measures in its manufacturing facilities amid the pandemic. In the year-to-date period, these costs amounted to $19 million. Management expects these temporary costs to minimize after COVID-19 subsides.
In February 2021, the company inked a deal to buy the Planters snack nuts business, which is expected to conclude in June. Management anticipates financing the deal through cash, short-term and long-term debt.
Outlook
Management remains optimistic about the foodservice industry. Also, it expects to keep witnessing high demand in the retail, deli and international channels. While the company is witnessing inflation, it expects to combat margin pressure with supply-chain enhancements and pricing.
All said, Hormel Foods pulled up its sales guidance while reaffirming its earnings per share view. Both views do not include impacts from the pending buyout of Planters’ snacks nuts business.
Management now projects fiscal 2021 net sales in the range of $10.2-$10.8 billion, up from $9.70-$10.30 billion projected before. Earnings per share are still envisioned in a band of $1.70-$1.82. The Zacks Consensus Estimate for sales and earnings is currently pegged at $10.2 billion and $1.73 per share, respectively.
Shares of this Zacks Rank #4 (Sell) company have declined 2.3% in the past three months against the industry’s growth of 3.1%.
3 Solid Consumer Staple Bets
Medifast (MED - Free Report) , which currently carries a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
United Natural (UNFI - Free Report) has a Zacks Rank #2 (Buy) and its bottom line outpaced the Zacks Consensus Estimate by 13.6% in the trailing four quarters, on average.
Pilgrim’s Pride (PPC - Free Report) has a Zacks Rank #2 and a long-term earnings per share growth rate of 27%.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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