Hormel Foods Corp. (NYSE:HRL) reported its performance for the fiscal year 2014 second quarter. All comparisons are to the second quarter of fiscal 2013.
Highlights - second quarter
- Record diluted EPS of $0.52, up 13 percent from $0.46 per share
- Segment operating profit increased 14 percent
- Record dollar sales of $2.2 billion, up 4 percent; volume down 1 percent
- Grocery Products operating profit up 16 percent; volume up 1 percent; dollar sales flat
- Refrigerated Foods operating profit up 38 percent; volume flat; dollar sales up 10 percent
- Jennie-O Turkey Store operating profit up 2 percent; volume down 5 percent; dollar sales down 1 percent
- Specialty Foods operating profit down 26 percent; volume down 14 percent; dollar sales down 12 percent
- International & Other operating profit up 34 percent; volume up 26 percent; dollar sales up 23 percent
The company reported fiscal 2014 second quarter net earnings of $140.1 million, up 12 percent from net earnings of $125.5 million a year earlier. Diluted earnings per share for the quarter were $0.52, up 13 percent compared to $0.46 last year. Sales for the quarter were $2.2 billion, up 4 percent from the same period in fiscal 2013.
“Our team achieved a record second quarter both in terms of dollar sales and earnings per share,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. “We improved operating profit margins on a total company basis and in four of our five segments.”
“Beneficial pork operating margins and growth in our value-added foodservice business drove our Refrigerated Foods segment results. Our Grocery Products and International segments continued to deliver distribution gains with SKIPPY® peanut butter this quarter,” commented Ettinger. “Favorable turkey commodity markets and growth in value-added product sales helped to mitigate lower live production results in our Jennie-O Turkey Store segment,” stated Ettinger.
Segment operating highlights – second quarter
- Grocery Products (17 percent of net sales, 25 percent of total segment operating profit): Grocery Products operating profit increased 16 percent, aided in part by a favorable comparison to fiscal 2013 which included SKIPPY® peanut butter acquisition costs. Total segment sales were flat. SKIPPY® peanut butter products, HORMEL® bacon toppings, and the HERDEZ® line of products within our MegaMex Foods joint venture delivered sales growth. Sales of our SPAM® family of products and HORMEL® COMPLEATS® microwave meals declined in the second quarter.
- Refrigerated Foods (50 percent of net sales, 34 percent of total segment operating profit): Refrigerated Foods segment profit increased 38 percent. Higher pork operating margins offset elevated raw material costs in the value-added businesses. Sales for the quarter were up 10 percent, led by retail sales of BLACK LABEL® bacon, HORMEL® REV® snack wraps, and HORMEL® COUNTRY CROCK® side dishes. Foodservice sales of HORMEL® FIRE BRAISEDTM meats, OLD SMOKEHOUSE® Pecanwood Smoked Bacon, and NATURAL CHOICE® deli meats also increased.
- Jennie-O Turkey Store (17 percent of net sales, 24 percent of total segment operating profit): Jennie-O Turkey Store segment profit increased 2 percent this quarter. Strong commodity turkey prices and lower feed costs were offset by lower live production performance and higher fuel expenses from the extended harsh winter. Sales were down 1 percent with lower bird weights driving lower volumes. Sales of value-added products increased this quarter, including JENNIE-O® fresh lean ground turkey tray packs, turkey breakfast sausage, and turkey bacon.
- Specialty Foods (10 percent of net sales, 8 percent of total segment operating profit)
- The Specialty Foods segment posted operating profits 26 percent lower than last year with a 12 percent decrease in sales. Lower segment results were largely due to the July 2013 expiration of the agreement allowing Diamond Crystal Brands to sell certain sugar substitutes into foodservice trade channels.
- International & Other (6 percent of net sales, 9 percent of total segment operating profit)
- The International & Other segment continued to generate strong growth with segment profits up 34 percent and a sales increase of 23 percent. The China business delivered excellent results with growth in pork and the addition of SKIPPY® peanut butter. Segment results were also driven by robust export sales.
“Our team continues to generate growth through innovative new value-added products, such as our HORMEL® BACON 1TM fully cooked bacon launched in foodservice channels this quarter by the Refrigerated Foods segment and SKIPPY® Singles Creamy peanut butter items recently introduced by the Grocery Products segment,” commented Ettinger.
“Elevated pork, beef, turkey, and avocado costs, driven by tighter raw material supplies, are presently compressing margins on many of our value-added products. We are maintaining our fiscal 2014 guidance range of $2.17 to $2.27 per share, but expect these cost pressures to push our full year earnings toward the lower end of this range,” stated Ettinger. “Even with these short term challenges, I am pleased with our team’s ability to deliver growth by providing consumers with valued, innovative products.”