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Mayank Marwah
Mayank Marwah
Articles (994) 

What Investors Should Know About Hormel Foods' 4th-Quarter Results

Earnings and revenue missed analysts' expectations

November 24, 2020 | About:

Hormel Foods Corp. (NYSE:HRL) released its fiscal fourth-quarter 2020 results before the market opened on Nov. 24. Both earnings and revenue failed to surpass Zacks' consensus estimate.

Key metrics

The owner of brands such as Jennie-O, Spam and Skippy posted earnings of 43 cents per share, which was down 9% from the year-ago quarter and missed expectations of 44 cents per share. Revenue came in at $2.4 billion, up 3% year over year. Analysts had projected revenue of $2.6 billion.

Organic net sales dropped 4% on a year-over-year basis. While the company's volume tumbled 2% in the quarter, it dipped 3% on an organic basis.

Reflecting on the company's performance, Chairman and CEO Jim Snee said:

"For the quarter, growth in our International segment was incredibly strong, particularly in China, where we drove balanced growth between the retail and foodservice channels. International sales of SPAM luncheon meat and SKIPPY peanut butter remained robust. We continued to see a high level of growth for many retail and deli brands, including Applegate, Columbus, Jennie-O, Hormel Black Label, Herdez and SKIPPY. Consistent with industry trends, our foodservice business showed declines this past quarter. As a leader in the industry, we will continue to support the distributor and operator community during this difficult time."

At the end of the quarter, the company had cash and cash equivalents of $1.7 billion and long-term debt of $1.04 billion (barring current maturities).

Segment performance

In the grocery products division, sales were down 1% to $580.6 million. Lower inventory levels, production limitations and declining sales of MegaMex foodservice items led to the decline. By contrast, volume increased 1% owing to robust demand for branded retail products. In addition, the segment witnessed growth in its organic sales, which was mainly driven by solid performance of Skippy peanut butter, Hormel chili and Hormel Compleats microwave meals. Profit in the segment grew 1%.

The Jennie-O Turkey segment saw revenue decrease 6% to $373.4 million. The decline was attributed to weak performances in its commodity and foodservice businesses. Volume dipped 2%, while profit plunged 21% due to mounting manufacturing expenses and supply chain expenses associated with the coronavirus pandemic.

In the Refrigerated Foods division, the company experienced sales decline of 5% to $1.309 billion while volume plunged 4% year over year.Strong sales of products like Hormel Black Label bacon, Applegate and Columbus, coupled with contributions from the Sadler's Smokehouse buyout, could not offset a severe decline in foodservice sales. Profits tanked 17% due to higher coronavirus-related costs.

Worldwide and Other revenue stood at $157.2 million in the fourth quarter, up 8%. Volume dropped 1% during the same period. Sales were fuelled by strong demand for Spam lunchmeat as well as other branded exports, which more than offset low fresh pork export sales. High sales in China and income from affiliates aided the segment's profit, which soared 55%.

Response to Covid-19

The company incurred more than $80 million in additional costs in the supply chain, associated with low production volumes, employee hazard pay bonuses and improving safety measures across the company's facilities in fiscal 2020. Hormel said most of the incremental supply chain expenses are temporary in nature and can be considerably reduced once the pandemic ends.

Dividend

Hormel Foods announced an annual dividend of 98 cents per share, which reflected a 5% hike. The company has raised its annual dividend for the 55th successive year.

Guidance

In light of the pandemic, Hormel did not issue any guidance figures for earnings and revenue.

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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