Hormel Foods Corp. (HRL) reported modest earnings for the third quarter with earnings of 57 cents per share, which was above the Zacks Consensus Estimate of 50 cents. Quarterly earnings were up considerably from the 38 cents reported in the prior-year quarter.
Net sales for the quarter declined 6.2% year-over-year to $1.57 billion due to declines across all operating segments—Grocery Products 6.2%, Refrigerated Products 4.9%, Jennie-O Turkey Store 4.9%, Specialty Foods 12.9% and Others 10.4%. Overall volumes declined 4% year-over-year.
Grocery Products revenues declined 6%, while volume was down 8%, as strong sales of the SPAM family of products, HORMEL chili and HERDEZ products were more than offset by the negative impact of soft sales of the microwaveable products. Further, sales of the recently discontinued Carapelli joint venture products also impacted the top line.
Refrigerated Foods segment posted a 4.9% decline in sales and volume was down 1%. Sales of the retail value-added offerings such as HORMEL Pepperoni, Party Trays and the DiLusso Deli Company products were more than offset by the impact of a challenging pork environment. Moreover, foodservice sales continued to be soft, reflecting continued decline in restaurant traffic.
Total segment sales for Jennie-O Turkey Store declined 4.9% and volumes also declined 2% year-over-year, primarily due to higher feed costs. However, this was partially offset by reduced turkey production.
Specialty Foods sales were down 12.9%, due to mixed results within the segment. However, sales of the Diamond Crystal Brands improved attributable to strong sales of nutritional products, but these results were fully offset by weak sales of ready-to-drink products at Century Foods International.
Sales decline of 10.4% reported by the Others segment, which primarily includes Hormel Foods International, was due to currency headwinds and difficult export markets.
Based on the performance in the third quarter, the company reiterated its annual earnings guidance. On August 10, 2009, Hormel had raised its guidance due to an improved performance by Jennie-O Turkey Store segment and the grocery products segment. Earnings for fiscal 2009 were raised to $2.36 – $2.42 per share compared to the earlier guidance of $2.15 – $2.25 per share.
Although Hormel faces challenges due to the sustained weak economy, a continued over supply of commodity turkey meat and difficult export markets, management still believes it can weather the storm through its balanced business model and strong portfolio of brands.
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