Meat producer Hormel Foods Corp. (HRL) Tuesday reported higher profit for the fourth quarter of fiscal 2009, despite a 10% decline in sales, driven by lower costs. The company lifted its annual dividend and provided earnings outlook for fiscal 2010. The company also said that it expects to restore top-line growth in 2010 on an annualized basis.
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.
The company's fourth-quarter net earnings were $103.88 million or $0.77 per share, compared to $67.81 million or $0.50 per share last year. The company noted that the prior-year results included retrospective reclassification of shipping and handling expenses to cost of products sold from selling, general and administrative.
On average, 9 analysts polled by Thomson Reuters expected the company to report earnings of $0.68 per share for the quarter. Analysts' estimates typically exclude special items.
The company's net sales declined 10% to $1.68 billion from $1.86 billion a year ago. Seven analysts had a consensus sales estimate of $1.82 billion.
Gross profit rose to $304.19 million from $276.24 million in the prior-year quarter. Interest & Investment income for the quarter was $2.18 million, compared with a loss of $19.96 million in the previous year quarter.
Commenting on the results, Jeffrey Ettinger, chairman of the board, president and chief executive officer of Hormel Foods, stated, "All five business segments contributed to our third consecutive strong quarter, generating a 54 percent increase in EPS and a 17 percent increase in segment operating profit. We are happy to get back on track with our long-term record of earnings growth after a challenging year in 2008."
The company in August reported a 49% surge in its profit for the sequential 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 third quarter also benefited from better investment performance in the company's rabbi trust.
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. Net sales for the quarter were $1.57 billion, down 6% from $1.68 billion in the prior-year quarter.
On a segmental basis, the company's Grocery Products generated fourth-quarter sales of $232.04 million, a decline of 11% from $263.38 million a year ago, due to a continued difficult consumer environment, particularly in the microwave product lines. The discontinued Carapelli joint venture comprised about a quarter of the sales decline, and increased promotional spending, difficult comparisons from a year ago and some product rationalization also contributed to the sales decline.
However, the segment's operating profit grew 12%, as a result of favorable raw material and freight and warehouse variances. Strong sales of Hormel chili also contributed to the segment profit growth.
Further, the company stated that its Refrigerated Foods business reported an 8.9% decrease in its fourth-quarter sales to $857.18 million from $941.41 million in the previous year, reflecting a weak food service sales environment and reduced prices of commodity pork, hams and bacon. Segment operating profit was up 23% versus last year as unfavorable spreads between hog costs and primal values were more than offset by a better product mix in both the Meat Products and Foodservice business units, as well as strong sales of products such as Hormel pepperoni, Lloyd's barbeque products, and the DiLusso Deli Company product lines.
Jennie-O Turkey Store's revenue dropped 9.8% to $337.54 million from $374.13 million last year as sales of value-added products were constrained by challenging market conditions. Total segment profit for Jennie-O Turkey Store improved 6% for the quarter, driven by lower feed expenditures due to the planned reduction of turkey production. The reduced production helped the company to offset continued low commodity meat prices.
Specialty Foods sales were $189.05 million, down 11.8% from $214.34 million in the previous year. Segment operating profit rose 9%, on mixed results within the segment. Strong private label performance by the business more than offset weak sales of nutritional and ready-to-drink products by Century Foods International, Hormel noted.
All Others, which include Hormel Foods International, posted quarterly net sales of $59.29 million, down 13.1% from $68.25 million last year. Profit improved 53%, helped by lower raw material and freight expenses, along with improved currency conditions. Meanwhile, export markets remained challenging due to the continuing weak global economy, Hormel noted.
The company said that its Board of Directors has announced its 44th consecutive annual dividend increase to $0.84 per share from $0.76 per share. The Board also authorized a quarterly dividend on the common stock of $0.21 per share, payable on February 15, 2010, to stockholders of record at the close of business on January 23, 2010.
For the twelve months ended on October 25, 2009, Hormel's net earnings were $342.8 million or $2.53 per share, compared to $285.5 million or $2.08 per share last year. Sales totaled $6.53 billion, down 3% from $6.75 billion in fiscal 2008.
Analysts expected the company to report earnings of $2.44 per share for the year on sales of $6.66 billion.
For fiscal 2009, Hormel continued to expect earnings in the range of $2.36-$2.42 per share. Hormel had raised the earnings forecast for the year in early August, citing stronger-than-expected results for the third quarter. Previously, the company projected full-year earnings in a range of $2.15-$2.25 per share.
Among others in the sector, Kraft Foods Inc. (KFT), the world's second largest food company, recently reported that its third-quarter profit fell 39.5% from last year, when results were boosted by huge gains from divestiture of discontinued operations.
The Northfield, Illinois-based Kraft Foods reported net income for the third quarter of $824 million or $0.55 per share, compared to $1.4 billion or $0.91 per share for the year-ago quarter. Earnings per share from continuing operations were $0.55, compared to $0.34 in the prior-year quarter.
Kraft Foods' net revenue fell 5.7% to $9.80 million from $10.40 million in the same quarter last year, hurt mainly by the impact of a stronger U.S. dollar.
Another peer, Smithfield Foods Inc. (SFD), a fresh pork and packaged meats processor, has reported a wider net loss for its first quarter, as sales declined from the previous year owing to lower volumes, currency fluctuations and a decline in fresh pork selling prices. The company reported a net loss of $107.7 million or $0.75 per share for the quarter, much wider than the loss of $13.2 million or $0.10 per share reported in the same quarter last year.
Smithfield's sales for the quarter were $2.715 billion, compared to $3.142 billion in the prior year quarter.
Moving ahead, Hormel sees fiscal 2010 earnings in the range of $2.63 - $2.73 per share.
"Having returned to more normal earnings growth levels this year, we are confident in our ability to continue to enhance our bottom line. We intend to tackle the challenge of a continued weak economy and reduced consumer spending, and expect to restore top-line growth on an annualized basis in 2010," the company noted.
Analysts expect the company to earn $2.59 per share, on revenues of $6.98 billion for fiscal 2010.
HRL is trading at $38.32, down $0.57, on a volume of 421,745 shares. For the 52-week period, the company's shares traded in the range of $24.81 - $39.04.
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