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Mayank Marwah
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Hormel Foods Posts Mixed 1st-Quarter Results

Company to acquire Sadler’s Smokehouse for $270 million

February 21, 2020 | About:

Hormel Foods (NYSE:HRL) released its first-quarter results before the opening bell on Feb. 20, 2020.

The company registered top and bottom line growth year-over-year. While sales edged past Zacks' consensus estimate, earnings fell short.

By the numbers

The owner of brands such as Jennie-O-Turkey, Spam and Skippy posted earnings of $0.45 per share, which increased 2% from the year-ago quarter but missed expectations of $0.46 per share. Revenue came in at $2.384 billion, up 1% year-over-year. Analysts had projected revenue of $2.361 billion.

Organic net sales jumped 4% on a year-over-year basis. While the company’s volume plunged 1% in the quarter, the same climbed 2% on an organic basis.

At the end of the quarter, the company had cash and cash equivalents of $724.4 million and long-term debt of $309 million.

Segment details

In the Grocery products division, sales dipped 10.9% to $540.6 million. In addition, volume decreased 14% owing to the divestiture of CytoSport. The segment also witnessed a decline in its organic sales as poor performance of Skippy products more than offset gains from SPAM and Wholly products. Profit in the segment amounted to $68.4 million, which reflected a decline of 28.2%

The Jennie-O Turkey segment saw revenue increase 2.8% to $330.1 million. Revenue growth was attributed to strong performance at commodity and whole-bird businesses coupled with better pricing. Volume rose 8%, while segment profit increased 1.7% to $3.6 million.

In the Refrigerated Foods sector, the company experienced sales growth of 5.7% to $1.351 billion while volume grew 3%. Strong sales of products like Hormel Bacon 1 and Hormel Fire Braised powered the segment’s volume and sales. Additionally, retail sales of Hormel Black Label and Hormel Cure 8 contributed to the segment’s growth. Profit totalled $167.3 million thanks to increased commodity prices.

Worldwide and Other revenue came in at $161.9 million in the fourth quarter, up 5.4%. Volume surged 5% during the same period. Fresh pork exports were on the rise during the quarter, as were sales in China. On the flip side, due to high input costs in Brazil, China and other Asian countries, segment profit dropped 20.1% to $20 million in the reported quarter.

Hormel Foods to acquire Sadler’s Smokehouse

On Thursday, Hormel entered into a contract to acquire Texas-based pit-smoked meats company Sadler's Smokehouse in a deal worth $270 million. This move is in line with the company’s strategy to bolster its position in foodservice.

President and CEO Jim Snee commented, “This is a very strategic acquisition for our foodservice business and it gives us another successful brand to expand into the retail and deli channels.” 

The transaction is expected to close in March 2020. As the company is looking to invest instantly in the business and production facility, the acquisition is likely to impact fiscal 2020 earnings from neutral to slightly negative.

Revenue and EPS guidance

For 2020, the company projects revenue will be between $9.5 billion and $10.3 billion. Earnings per share are expected to be in the range of $1.69 to $1.83.

Disclosure: I do not hold any positions in the stocks mentioned

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About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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