Hormel beats income expectations boosted by increases in refrigerated foods
- Hormel Foods reported net income of $261.4 million — or 48 cents per share — in the fourth quarter, up from $218.2 million last year, according to the most recent earnings report. The jump was led by increases in refrigerated foods, where profit in the segment was up 25% this quarter.
- Net income exceeded analyst expectations that predicted 46 cents per share, but Hormel's revenue did miss expectations by 1.22%. The company's net sales of $2.52 billion were up 1% from last year, but organic net sales were down 3% with decreases from grocery products and Jennie-O Turkey Store.
- "Our team delivered a record quarter of earnings," Jim Snee, chairman of the board, president and chief executive officer, said in the release. "Our focus on building brands, delivering meaningful innovation to the marketplace, making strategic acquisitions, and creating intentional balance will ensure we are able to meet our growth goals."
Hormel has been going strong in recent years and this quarter was no exception. A lot of that growth has been a result of the company's recent acquisitions.
The company has been active with M&A in recent years by acquiring brands like Applegate, Justin's, Skippy and Muscle Milk. Last year, Hormel acquired deli meat and salami company Columbus Craft Meats for $850 million — the largest acquisition in the company’s history. Hormel said in the release that the company is in a strong financial position with a low level of debt and consistent cash flows after this major acquisition.
However, selling and administrative expenses for the year did increase due to acquisitions and higher advertising investments. The company also acquired Chicago-based Fontanini Italian Meats and Sausages last year for $425 million. There are likely to be more deals in the future, given the company's continued strong earnings. Earlier this year, Hormel's CEO told Food Dive that the company hasn't stopped looking for acquisitions.
The refrigerated foods segment had an especially solid quarter with volume up 2% and net sales up 6%. The increase in sales was driven by Hormel pepperoni, Natural Choice products, Applegate natural and organic products and Austin Blues authentic barbeque products. Sales also saw a benefit from the Columbus and Fontanini acquisitions, according to the report. The increases in the company's pork products isn't surprising, given the high demand for beef and pork in the U.S. amid the recent trade wars.
Volume and sales also increased internationally with higher exports of its well known Spam and Skippy peanut butter products, as well as the addition of the Ceratti business. Those increases were partially offset by lower pork exports because of trade wars that have been cutting into meat makers' profits.
Not everything was good news for Hormel this quarter. The company's Jennie-O Turkey Store was down 4% in both volume and net sales. Those declines were caused by shipments that were shifted into the previous quarter to minimize cold storage expenses. But decreases in the Jennie-O segment might continue. Just this week, Jennie-O recalled more than 145,000 pounds of raw ground turkey linked to a multi drug-resistant salmonella outbreak, which could continue to hurt sales in this segment going into 2019.
The company's positive earnings were also offset by grocery products, which were were down 4% in both volume and net sales. Although the company saw growth in volume and sales of Herdez salsa and Wholly Guacamole dips, it didn't offset declines in Hormel's contract manufacturing business and higher freight expenses.
Going forward, Hormel has set ambitious goals for the future. For fiscal year 2019, the company expects revenue of $9.7 billion to $10.2 billion. Those expectations are higher than the FactSet consensus for $9.59 billion. If the company can keep on track with more growth from its recent acquisitions and boost its brands that struggled this quarter, those lofty goals could become reality.
"This coming year will require strong execution from every business unit in order to manage through commodity market volatility and global trade uncertainty. I know our team is up to the challenge," Snee said in the release.
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