Hormel raises guidance on Q2 performance

by Erica Shaffer
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AUSTIN, Minn. – Hormel Foods Corp. raised its earnings guidance based on a strong second quarter in which net earnings for the company climbed 20 percent on the strength of the company’s Refrigerated Foods business.

“We are raising our fiscal 2016 earnings guidance range from $1.50 to $1.56 per share to $1.56 to $1.60 per share based on strong second quarter results and continued expectations for growth in the back half of the year,” James P. Snee, president and COO, said in a statement.

For the second quarter, Hormel Foods reported net earnings of $215.4 million, or 40 cents per diluted share, for the second quarter, up 20 percent from $180.2 million, or 33 cents per diluted share a year ago. Earnings per share measures reflect a two-for-one stock split distributed on Feb. 9, the company said.

Sales for the quarter climbed 1 percent to $2.3 billion.

“Hormel Foods delivered strong results this quarter, our twelfth consecutive quarter of record earnings, with four of five segments achieving double-digit increases in operating profits,” Jeffrey M. Ettinger, chairman and CEO, said in a statement. “Excellent results in Refrigerated Foods and Grocery Products were driven by favorable pork operating margins and solid growth posted by value-added products such as Hormel Natural Choice meats, Hormel pepperoni, Hormel Gatherings party trays, Skippy peanut butter, Hormel chili and Wholly Guacamole dips.”

On a segment basis, profit increased 21 percent in Grocery Products. Favorable raw material costs and improved plant efficiencies drove results. Sales increased 1 percent on growth from Skippy peanut butter and Hormel chili, which offset declines in the company’s chunk meats business. Volume declined 1 percent.

Strong pork operating margins and the addition of the Applegate business provided tailwinds for the Refrigerated Foods segment, which posted a 13 percent increase in segment profit for the second quarter. Including Applegate, sales advanced 7 percent led by foodservice sales of Old Smokehouse bacon and Hormel Fire Braised meats in addition to increased retail sales of Hormel Natural Choice meats and Hormel pepperoni. Volume climbed 3 percent in the quarter.

Sales declined 4 percent in the Jennie-O Turkey Store segment, reflecting a 5 percent decline in volumes and the impact of highly pathogenic avian influenza in fiscal 2015. However, segment profit increased 20 percent on improved product mix and favorable input costs.

Specialty Foods net profit surged 74 percent on lower input costs, a favorable comparison to the plant closure a year ago and operational synergies captured within the CytoSport and Century Foods supply chain, the company said. Higher sales of Muscle Milk protein products were unable to offset reduced contract packaging sales which contributed to a 5 percent drop in dollar sales.

“…Specialty Foods has significantly enhanced its margin delivery through efficiency gains and increased branded sales, and continues to focus on innovation, highlighted by the recent launch of Muscle Milk protein smoothies,” Ettinger said. “Specialty Foods also finalized the sale of Diamond Crystal Brands in May.”

“Jennie-O Turkey Store generated an impressive earnings performance despite lingering effects of turkey supply constraints, while International was challenged by weak exports and high pork costs in China.”

In the International segment, net profit dropped 33 percent, volumes fell 13 percent and sales were down 17 percent. Headwinds for the segment included high pork input costs in China and soft demand for US export products.

“We look for Refrigerated Foods and Grocery Products to continue driving earnings increases through growth in value-added products combined with favorable input costs,” Snee said. “Jennie-O Turkey Store is well-positioned to drive sales and earnings growth as turkey production has returned to normalized levels.

“Specialty Foods will continue to deliver increased sales of Muscle Milk protein products but may not show year-over-year increases in segment sales and earnings as a result of the divestiture of Diamond Crystal Brands,” he added. “We expect International to return to growth in the back half of fiscal 2016 led by export sales of our Spam family of products and Skippy peanut butter.”

In addition to its earnings, Hormel announced an agreement to acquire Justin’s, LLC, maker of Justin’s brand nut butter spreads, squeeze packs, peanut butter cups and snack packs. Financial terms were not disclosed.

“We are excited to work together with the Justin’s team to bring these great natural and organic products to even more consumers, leveraging key Hormel Foods resources to drive continued innovation and growth to this on-trend category,” Snee said.

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