Meat producer Hormel Foods Corp. (HRL) on Thursday reported a 49% surge in profit for the third quarter from last year, helped by an increase in earnings at its refrigerated foods segment, improved results at its Jennie-O Turkey Store segment and lower costs.
The results for the quarter also benefited from better investment performance in the company's rabbi trust. Earnings per share for the quarter increased 50% from the year-ago period and beat analysts' consensus estimate. For fiscal year 2009, the company maintained its earnings outlook, which it had raised earlier in the month.
Cash-strapped consumers have scaled back on costs during the recession by eating more at home than at restaurants. Hormel has benefited from the recession as its value-priced items like Spam family of products and Dinty Moore canned stews continue to appeal to budget-conscious consumers because of their low costs.
Third-Quarter Results
The Austin, Minnesota-based company's net income for the third quarter increased to $77.17 million, or $0.57 per share, from $51.95 million, or $0.38 per share, in the prior-year quarter. On average, eight analysts polled by Thomson Reuters expected the company to report earnings of $0.52 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter were $1.57 billion, down 6% from $1.68 billion in the prior-year quarter. Analysts had a consensus revenue estimate for the quarter of $1.70 billion.
Volume for the quarter was down 4% from the prior-year period. Sales and volume for the quarter were lower overall as the company made intentional reductions to its turkey production, while the effect of the economy took its toll on certain portions of the business.
Jeffrey Ettinger, chairman of the board, president and chief executive officer of Hormel Foods, said, "Our Refrigerated Foods segment rebounded to post higher earnings on an enhanced sales mix and lower costs, despite weak cutout margins during much of the quarter. Our Jennie-O Turkey Store segment also showed continued improvement in the quarter."
Ettinger added, "Our Grocery Products segment had another solid quarter, as increased sales of canned items more than offset the impact of discontinued sales of olive oil and soft sales of microwave products. Our Specialty Foods and All Other segments had weaker results."
Peer Performance
In early August, meat products maker Tyson Foods, Inc. (TSN) reported a profit for the third quarter that soared from last year, boosted by higher sales and significantly positive operating margins at the chicken segment. The company's net income for the third quarter rose to $134 million, or $0.35 per share, from $9 million, or $0.03 per share, in the prior-year quarter. Sales for the quarter declined 2.8% to $6.66 billion from $6.85 billion in the same period last year.
Other Metrics
Hormel's gross profit for the quarter rose to $260.32 million from $229.05 million in the year-ago period.
Operating income for the quarter climbed 26% to $118.60 million from $94.03 million in the same period last year. Net interest and investment income for the quarter was $6.41 million, compared to interest and investment loss of $6.45 million in the year-ago period, helped by gains in the rabbi trust investment.
Segmental Results
Hormel's refrigerated foods business, which constituted 54% of net sales, reported a 5% decrease in sales from a year ago to $847.58 million. Sales of retail value-added offerings such as Hormel Pepperoni, Hormel Party Trays and the DiLusso Deli company products that more than offset the impact of a challenging pork environment. Foodservice sales, however, continued to be soft during the quarter, reflecting a weak travel and recreational environment as well as a continued decline in the restaurant trade. Operating profit for the segment rose 60% from the previous-year quarter to $58.29 million, on strong export demand. Additionally, primal values were exceptionally high in the year-ago period.
Net sales for the grocery products segment declined 6.2% from last year to $209.01 million. Sales for the segment represented 13% of net sales for the quarter. Excluding sales of the recently discontinued Carapelli joint venture products, net sales for the segment were even with last year. Operating profit rose 11.3% from last year to $33.22 million, helped by strong sales of the Spam family of products, Hormel chili and Herdez products that more than offset the impact of discontinued sales of olive oil as well as soft sales of microwave products.
At Jennie-O Turkey Store, sales for the quarter declined 5% from the prior-year quarter to $295.38 million. The segment's sales represented 19% of net sales for the quarter. Operating profit rose 97% to $15.92 million, driven by lower feed expenditures due to a planned reduction of turkey production and a reduced cost per ton. Hormel noted that the reduced production helped offset the continued challenge of low commodity meat prices by reducing the company's exposure to those markets.
The specialty foods segment witnessed a 13% decline in sales for the just-concluded quarter to $167.20 million. Sales for the segment accounted for 11% of net sales for the quarter. Operating profit declined 2% from the prior year to $16.49 million. Weak sales of nutritional and ready-to-drink at Century Foods International more than offset strong sales of nutritional products at Diamond Chrystal Brands.
The All Other segment, which includes Hormel Foods International, recorded a 10% decline in net sales to $55.27 million. Operating profit for the segment declined 19% to $4.66 million. The company attributed continued currency headwinds and difficult export markets to the weaker results.
Year-To-Date Results
For the nine months, Hormel's net earnings increased to $238.94 million, or $1.76 per share, from $217.69 million, or $1.58 per share, in the prior-year period.
Net sales for the period totaled $4.86 billion, down 0.7% from $4.89 billion in the year-ago period.
Outlook
For fiscal year 2009, Hormel maintained its forecast for earnings in the recently announced range of $2.36-$2.42 per share. Analysts expect the company to report earnings of $2.41 per share for the year.
Hormel had raised its earnings forecast for the year in early August, citing stronger-than-expected results for the third quarter. Previously, the company had forecast earnings for the year in a range of $2.15-$2.25 per share.
Stock Quotes
In Thursday's regular trading session, HRL is trading at $37.73, up $0.49 or 1.32%. In the past 52 weeks, the stock has been trading in a range of $24.81-$39.04.
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