Dollar sales increased 10% to $1.9 billion, driven entirely by price (flat volume). Net sales on a segment basis were as follows: the refrigerated foods segment (roughly $1 billion, 55% of net sales) increased 10%, the Jennie-O Turkey Store segment ($328 million, 17% of net sales) increased 11%, the grocery products segment ($245 million, 13% of net sales) increased 4%, the specialty foods segment ($207 million, 11% of net sales) increased 11%, and the “all other” segment ($84 million, 4% of net sales), which consists primarily of Hormel Foods International, increased 35% in the quarter.
Operating profit increased a rather paltry (considering 10% sales growth) 2% to $148.2 million, largely due to a double digit decline in the company’s largest segment. Operating profit on a segment-by-segment basis was as follows: the refrigerated foods segment (roughly $57 million, 38% of total) declined 12%, the Jennie-O Turkey Store segment ($35 million, 24% of total) increased 14%, the grocery products segment ($30.4 million, 21% of total) increased 19%, the specialty foods segment ($18 million, 12% of total) declined 8%, and the “all other” segment ($9 million, 5% of net sales) increased 67% in the quarter.
In regards to the declines in Refrigerated and Specialty Foods, here is what CEO Jeffrey Ettinger had to say: “Segment operating profit for our Refrigerated Foods segment declined by 12%, hindered by lower pork operating margins versus last year's historically high margins… Segment profit results [in specialty foods] were hurt primarily by elevated raw material costs, which were higher than anticipated during the quarter”.
Through the first nine months of the fiscal year, sales are up 12.3% to just under $5.8 billion. Total segment operating profit and earnings before taxes (EBT) look even stronger, up 21.2% and 23.4%, respectively.
Earnings for the third quarter were $0.36 per share, up 13% from the $0.32 per share achieved a year ago (helped by a repurchase of 1.6 million shares in the quarter). On a U.S. GAAP basis, net earnings for the nine months were $356.9 million ($1.31 per share), up 30% compared to net earnings of $274.4 million (EPS of $1.01) from the same period last year.
For the remainder of the year, Mr. Ettinger had this to say: “Given our results in the third quarter, we are again raising our full-year guidance range to $1.70 to $1.75 per share from $1.67 to $1.73 per share.” Compared to the $1.46 earned in 2010, management’s updated guidance suggests 16-20% EPS growth for the year.
Despite the increase in guidance, investors didn’t look too anxious to take a bite on HRL stock: it fell more than 7% on the day.
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I hope to own a collection of great businesses; to ever sell one, I would demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over a period of many years.