Packaged food and meat products maker Hormel Foods Corp. (HRL) reported Wednesday a profit for the third quarter that increased six percent from last year, despite a sales drop, reflecting improved gross margins amid lower costs.
Adjusted earning per share topped analysts' expectations by a penny, while quarterly net sales missed their estimates. The company also raised its earnings guidance for the full-year 2015.
In late July, Hormel Foods agreed to buy organic meat products maker Applegate Farms LLC for about $775 million, as consumers increasingly prefer natural and organic foods in their diet. The deal is expected to close in about 60 days.
"Our balanced business model prevailed once again this quarter, as we were able to overcome the significant challenge of avian influenza in our Jennie-O Turkey Store segment to deliver record earnings and volume sales," Chairman, President and CEO Jeffrey Ettinger said.
The Austin, Minnesota-based maker of Spam canned pork posted net earnings attributable to Hormel of $146.94 million or $0.54 per share for the third quarter, higher than $138.98 million or $0.51 per share in the prior-year quarter.
Excluding Applegate transaction costs of $0.02 per share, adjusted net earnings for the quarter was $152.5 or $0.56 per share. On average, six analysts polled by Thomson Reuters expected the company to report earnings of $0.55 per share for the quarter. Analysts' estimate typically excludes one-time items.
Net sales for the quarter decreased 4.2 percent to $2.19 billion from $2.28 billion in the same quarter last year, and missed four Wall Street analysts' consensus estimate of $2.26 billion. However, sales volumes for the quarter increased 3 percent from last year.
Sales for the quarter were impacted by lower pricing due to declining pork markets affecting refrigerated Foods and international segments, and the loss of sales related to avian influenza in the Jennie-O Turkey Store segment.
Hormel Foods' largest segment, refrigerated foods, recorded a 11.4 percent drop in sales to $1.06 billion, or 48 percent of total net sales, from the prior-year quarter. Operating profit improved 8.5 percent, and sales volumes grew 2 percent.
Grocery products sales increased 7.9 percent to $388.09 million, or 18 percent of total net sales, from the year-ago quarter. Segments' operating profit also surged 57.2 percent, benefiting from lower input costs.
Sales for the Jennie-O Turkey store totaled $336.53 million, or 15 percent of total net sales, a 12.1 percent decline from the same quarter last year. Operating profit at the segment dropped 45.4 percent, reflecting the substantial impact of the avian influenza outbreak earlier this year.
Sales for specialty foods totaled $282.77 million or 13 percent of total net sales, up 30.7 percent from the prior-year quarter. Operating profit also surged 79.5 percent, primarily driven by the addition of Muscle Milk protein nutrition products and synergies from CytoSport and Century Foods supply chain.
"Grocery Products drove earnings growth with favorable input costs and increased sales of Hormel chili and Skippy peanut butter. Specialty Foods also delivered excellent results, as the team continues to increase sales of Muscle Milk protein nutrition products, and improve the cost structure and synergies between our CytoSport and Century Foods businesses," Ettinger stated.
All other segment, including the international business unit, contributed sales of $125.06 million or 6 percent of total net sales, 6.5 percent lower than the year-ago quarter. However, operating profit also grew 3 percent, driven by higher royalties and strong performance by China businesses.
Total segment operating profit rose 5.3 percent to $236.62 million from the year-ago quarter.
Looking ahead to fiscal 2015, Hormel Foods raised its earnings guidance to a range of $2.57 to $2.63 per share from the prior forecast range of $2.50 to $2.60 per share. Street is currently looking for full-year 2015 earnings of $2.54 per share.
"We look for Refrigerated Foods and Grocery Products to continue to drive earnings increases with input cost tailwinds and growth in key value-added product," Ettinger added.
HRL closed Tuesday's regular trading session at $60.50, down $0.97 on a volume of 1.16 million shares. In the past 52-week period, the stock has been trading in a range of $47.39 to $61.56.
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