Hormel Foods Corp. (HRL, Financial) released its second quarter results for fiscal 2021 before the market opened on May 20. While earnings matched Wall Street's forecasts, revenue was ahead of projections.
Key metrics
The owner of brands such as Jennie-O, Spam and Skippy posted earnings of 42 cents per share, which remained flat as compared to the year-ago quarter and matched expectations of 42 cents per share. Revenue came in at $2.61 billion, up 8% year over year. Analysts had projected revenue of $2.42 billion.
Reflecting on the company's performance, Chairman and CEO Jim Snee said:
"Once again, our balanced business model has proven to be a winning formula as our team delivered record sales in the first half and is on pace to deliver a second consecutive year of record sales. We were able to achieve these record results through strong foodservice sales, continued elevated demand in the retail, deli and international channels, and improved supply chain performance."
At the end of the quarter, the company had cash and cash equivalents of $1.5 billion and long-term debt of $1.04 billion (barring current maturities).
Segment performance
In the grocery products division, sales were down 8% to $628.2 million. Lower inventory levels, production limitations and declining sales of MegaMex foodservice items led to the decline. Likewise, volume decreased 14% owing to robust demand in the second quarter of the previous year. Profit in the segment plunged 23%.
The Jennie-O Turkey segment saw revenue increase 2% to $351.2 million. The decline was attributed to strong performances in its commodity and foodservice businesses. Volume dipped 3%, while profit tanked 54% due to mounting manufacturing expenses and supply chain expenses associated with the Coronavirus pandemic.
In the Refrigerated Foods division, the company experienced sales growth of 17% to $1.45 billion while volume was up 3% year over year. Strong sales of products like Hormel Black Label bacon, Applegate and Columbus, coupled with contributions from the Sadler's Smokehouse buyout, contributed to the division's overall growth. Additionally, strong foodservice sales helped. Profits grew 32%.
Worldwide and Other revenue stood at $173.8 million in the second quarter, up 17%. Volume was flat during the same period. Sales were fuelled by strong demand for Spam lunchmeat as well as other branded exports, coupled with high fresh pork export margins. High sales in China and income from affiliates aided the segment's profit, which soared 6%.
Response to Covid-19
Looking back, 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.
Back in Q2 2020, the company spent roughly $6 million towards incremental supply chain costs. Hormel said most of the incremental supply chain expenses are temporary in nature and can be considerably reduced once the pandemic ends.
2021 outlook
For full fiscal 2021, Hormel Foods predicts diluted earnings to fall within the range of $1.70 to $1.82 per share. Revenue is anticipated to be between $10.20 billion and $10.80 billion.
Disclosure: I do not hold any positions in the stocks mentioned.
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