Demand drives Hormel Q1 earnings

by Erica Shaffer
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Jennie-O ground turkey
Jennie-O brand lean ground turkey and rotisserie turkey turned in a strong Q1 performance.

AUSTIN, Minn. – The first quarter of fiscal 2015 got off to a double-digit start at Hormel Foods Corp. Adjusted net earnings jumped 22 percent from a year ago, while first quarter sales topped $2.4 billion, a 7 percent increase over the 2014 first quarter.

During an earnings conference call with analysts, Jeffrey Ettinger, president and CEO, announced the company had raised its earnings guidance for the year.

“Due to our strong performance in the first quarter, we are raising our fiscal 2015 adjusted earnings guidance range, excluding the nonrecurring charges, from $2.45 to $2.55 per share up to $2.50 to $2.60 per share,” he said.

In terms of segment performance, the company's Jennie-O Turkey Store segment profit surged 56 percent in the first quarter on continued growth of value-added products and favorable turkey commodity prices, Hormel said. Sales for the quarter advanced 10 percent on strong performance by Jennie-O brand lean ground turkey and rotisserie turkey. Ettinger attributed the positive performance of the segment in part to the milder winters in Minnesota and Wisconsin, where most of the company’s turkeys are raised, as well as the lower cost of propane compared this year compared to this past winter.

The company's Refrigerated Foods unit reported a 19 percent increase in operating profit driven by growth in value-added products. Sales for the quarter climbed 1 percent on higher sales of branded items such as Hormel Bacon 1 fully cooked bacon, Hormel pizza toppings and Menu Master hams. Meat products grew retail sales of Hormel Gatherings party trays, Hormel pepperoni and Hormel Natural Choice lunchmeat. However, a portion of the sales increases were offset by the dissolution of Precept Foods, LLC, a partnership between Hormel Foods and Excel Corp., a subsidiary of Cargill.

“In addition to this value-added product growth, lower than anticipated hog prices were a nice tailwind for the segment during this quarter,” Ettinger said. “The combination of lower feed cost, a more mild winter and a fairly quick rebound from the PED virus that plagued the industry over the past year is resulting in an increasing domestic hog supply. Pork remained an excellent relative value to consumers, and we continue to see solid demand from our customers.”

Hormel's Grocery Products segment profit declined 8 percent on non-recurring charges related to the closing of a manufacturing facility in Stockton, Calif. Segment sales advanced 2 percent including additional net sales of MegaMex Foods products. Products delivering sales growth in the quarter included the SPAM product line in addition to Herdez salsas and sauces and Wholly Guacamole dips. The segment posted softer sales of Skippy peanut butter and Hormel chili, according to the company.

Hormel Gatherings party tray
Items including Hormel Gatherings party trays drove growth in the Hormel Foods' Refrigerated Foods segment.

“We look for Grocery Products and Specialty Foods segments to contribute to our growth goals in the back half of the fiscal year, Ettinger noted. “We expect International to build on its growth trajectory in China with some challenges to its export business over the next few months offsetting a portion of that growth.”

Profits in the Specialty Foods segment dropped 13 percent, while sales jumped 34 percent on the addition of Muscle Milk protein nutrition products.

“Specialty Foods will maintain its focus on maximizing CytoSport synergies, gaining distribution, igniting innovation and building the Muscle Milk brand to drive segment growth,” Ettinger said. “We continue to expect the CytoSport business to deliver the $0.05 per share earnings accretion we have previously guided.”

The company's International & Other segment profit climbed 6 percent and sales were up 17 percent. Continued growth of the company's China foodservice and retail businesses offset lower SPAM lunch meat exports.

“Looking ahead to the rest of fiscal 2015, we believe hog and grain costs will remain favorable,” Ettinger said. “We expect the high turkey commodity prices, which have been beneficial over the last several months, to trend down as the year progresses. We anticipate sales of our value-added products in Refrigerated Foods and Jennie-O Turkey Store will remain strong throughout the year. Lower meat prices will provide input cost relief for some of our Grocery Products categories after we work through higher cost inventories.”

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