Hormel Foods (HRL, Financial) reported pretty decent numbers last quarter with year over year growth in both revenue and profit. This was mainly driven by sales in its refrigerated foods and Jennie-O Turkey Store. However its earnings missed the analysts forecast by a penny, which was not well received by investors on the street. But this was only a minor disappointment as the company seems to be well on track to deliver strong growth in the days ahead.
A closer look at the business
During the quarter, Hormel’s grocery products did not do well with sales down 3% while profits were down 21% on a year over year basis. To rectify this situation the management has increased the advertising spends on grocery products. It will also integrate Fresherized Foods into its sales and distribution systems to give this brand the full benefit of its consumer products sales force capabilities.
Along with this, Hormel also reported weakness in its Specialty foods segment, which was mainly led by CytoSport products. However, with the initiatives taken by the management, things are getting better with CytoSport. These initiatives could strengthen in Specialty foods segment in the coming days.
On the bright side, the company had a strong performance from its refrigerated foods. In fact, the management cites that it’s Pork operating margins were a significant driver to the higher results this quarter. These are encouraging results considering the deadly swine virus that killed millions of young pigs and affected hog farms in 30 states . For the days ahead the management anticipates even better results on the back of innovative products such as Hormel fire braised meats and Hormel bacon one fully Cooked Bacon among others.
Moving in the right direction
Moreover, the company has announced the construction of a new Refrigerated Foods plant in China, which is expected to start in 2016. This facility will supply pepperoni, bacon, ham and other refrigerated meat items to the foodservice and retail channels in the region. In the light of these new developments, the management expects its International segment, operating profit margins to be in the range of 14% to 17% in the next few years.
Similarly, Jennie-O Turkey Stores also played significant role to add to its top line with a sales increase of 11% while profits jumped 45% year over year. The company benefited from higher turkey prices during the quarter along with continued growth in value added sales. And as the company moves into a new fiscal, it has increased its advertising spends on Jennie-O Turkey. The management plans to continue with its ‘Make The Switch campaign’ in the new U.S markets, to attract new customers.
Conclusion
Going forward, the company seems to be well on track to deliver year over year growth. However, some analysts argue that the higher meat prices will eventually come down affecting its refrigerated foods segment. But if the pork prices come down it will strengthen its grocery products segment. Therefore, in one way or the other Hormel Foods is expected to benefit in the coming months.
