Hormel Foods Corp. (HRL) reported encouraging results for the first quarter of fiscal 2010. During the quarter, net earnings was $111.2 million, up 37% from $81.4 million in the same quarter of fiscal 2009. EPS for the quarter was 82 cents, compared to 60 cents in the year-ago quarter. It exceeded market expectations of 68 cents.
Sales totaled $1.73 billion, up 2% from the same period in the previous year. The Grocery Products segment achieved an impressive segment operating profit improvement of 37% versus the same quarter in 2009. Lower costs and increased revenues of core products such as Hormel chili, Dinty Moore stews, and the SPAM family of products drove profitability. Overall, segmental revenue increased 8% for the quarter.
The Refrigerated Foods segment finished a strong first quarter with segment operating profit 53% greater than the last year’s quarter, as favorable spreads between hog costs and primal values benefited the segment. Revenue was flat based on soft demand for hams, bacon and commodity pork. Additionally, the foodservice sales environment remains weak.
Jennie-O Turkey Store improved its segment profit results by 14%. Stronger whole bird sales and better commodity meat prices helped drive results. Revenue increased 5% due to increased whole bird and value-added sales.
Segment profit for Specialty Foods increased 28%, with positive contributions from each of its three business units. Improved results were driven primarily by the sales of private label products and sugar substitutes. Revenue grew 5% led by higher contract manufacturing and sugar substitute sales.
The All Other segment, which consists of Hormel Foods International, experienced a segment profit decline of 6%, primarily due to weaker exports of fresh pork products. Revenue was up modestly due to strong exports of the SPAM family of products.
Due to better-than-expected results in the first quarter, Hormel raised its full-year EPS guidance range from $2.63 to $2.73 per share to $2.68 to $2.78.
Hormel Foods is a leading manufacturer and marketer of various meat and food products. The company has strengthened its position through acquisitions, which is expected to be its key growth strategy in the future.
Further the company plans to increase spending on advertising, which would definitely help maintain and grow its market share in the future. Moreover, a greater share of value-added branded products in Hormel’s product-mix will help strengthen its margins and reduce exposure to commodity prices in the long term. Thus, we maintain our Neutral recommendation on the stock.
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