Hormel reports record $195.7M 3Q earnings

Published 8:56 am Thursday, August 18, 2016

Just a few weeks after celebrating its 125th anniversary with a community celebration and concert by The Band Perry, Hormel Foods Corp. is celebrating a record performance for the 2016 third quarter.

Hormel’s net earnings for the quarter reached a record $195.7 million, up 33 percent from $146.9 million in 2015.



“We are pleased to announce exceptional results this quarter with three of our five segments delivering volume, sales and earnings growth. This is also our thirteenth consecutive quarter of record earnings which is a testament to our balanced business model,” said Jeffrey M. Ettinger, chairman of the board and CEO, in a press release.

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The Austin, Minnesota-based company also reported record dollar sales of $2.3 billion, up 5 percent, and record diluted earnings per share of $0.36, up 33 percent from $0.27 per share.

The quarter was driven by growth in Refrigerated Foods, Jennie-O Turkey Store and its international division, while Grocery Products was flat and Specialty Foods saw profit drop by 134 percent.

Income taxes for the quarter benefited from a $14 million reduction due to discrete tax events primarily related to an international entity restructuring.

The strong quarter has Hormel optimistic in looking ahead to next year.

“Our early look into fiscal 2017 shows us once again growing sales and earnings,” President and Chief Operating Officer James Snee.

Hormel’s segment highlights

•Refrigerated Foods, which accounts for 50 percent of net sales, saw segment profit increase 24 percent aided by the inclusion of Hormel’s new Applegate Farms business, favorable market conditions, and growth in value-added products. Results reflect a favorable comparison to the prior year, which included Applegate transaction costs of $8.6 million. Sales increased 9 percent on continued success in foodservice products including Old Smokehouse bacon and Hormel Fire Braised meats, and retail products such as Hormel Natural Choice meats and Hormel Gatherings party trays. Brands experiencing declines in sales include retail deli products and Lloyds barbecue ribs.

“Excellent results in Refrigerated Foods were driven by the addition of the Applegate business, foodservice sales of Old Smokehouse bacon, Hormel Bacon 1 fully cooked bacon, and Hormel Fire Braised meats, and retail sales of Hormel Natural Choice meats. Jennie-O Turkey Store also returned to growth, posting strong double-digit sales and earnings increases,” Ettinger said in the release.

•Jennie-O Turkey Store, which accounts for 18 percent of net sales, saw profit increase 59 percent and sales increase 20 percent following the recovery from last year’s avian influenza. Jennie-O value-added foodservice and deli products contributed to sales growth during the quarter.

•International & Other, which accounts for 6 percent of net sales, saw profit increased 5 percent and sales increased 5 percent. Exports of fresh pork, Skippy peanut butter, and the Spam family of products drove the improved results.

•Grocery Products, which accounts for 17 percent of net sales, saw its profit remain flat for the quarter due to an increase in advertising spending and transaction costs related to the Justin’s LLC acquisition. But sales grew 3 percent led by the inclusion of Justin’s products in addition to increases in the Spam family of products, Skippy peanut butter, and Wholly Guacamole dips.

“Iconic brands such as Spam and Skippy drove increased sales in our Grocery Products and International segments,” Ettinger said in the release. “We enjoyed strong growth from Muscle Milk protein products led by innovative new items such as Muscle Milk protein smoothies, though Specialty Foods did not show growth this quarter due to the sale of Diamond Crystal Brands.”

•Specialty Foods, which accounts for 9 percent of net sales, saw profit decrease 13 percent and sales decrease 25 percent. Continued growth in Muscle Milk protein products couldn’t offset reduced contract packaging sales and the divestiture of Diamond Crystal Brands.



Looking ahead

Snee said they look for Refrigerated Foods to keep growing in the fiscal fourth quarter, and Jennie-O is expected to show strong earnings in the fourth-quarter.

“We expect a strong finish to fiscal 2016, led by valued-added sales in Refrigerated Foods, Jennie-O Turkey Store and International,” Snee said in a press release. “Franchises such as Skippy peanut butter products, Wholly Guacamole dips, and Muscle Milk protein products are positioned to drive sales growth for the fourth quarter.”

After the strong quarter, Hormel increased its 2016 annual guidance to $1.60 to $1.64 per share from $1.56 to $1.60 per share.

“We expect to show sales and earnings growth in fiscal 2017 and will provide a more definitive guidance range on our fourth quarter conference call in November,” Snee said in the release.

On Aug. 15, Hormel paid its 352nd consecutive quarterly dividend, at the annual rate of $0.58.

Ettinger also thanked Chief Financial Officer Jody Feragen for her many years of service and wished her well as she plans to retire at the end of the fiscal year.