Hormel Foods Corporation HRL posted lower-than-expected first-quarter fiscal 2023 results, with the top and the bottom line declining year over year. Earnings and net sales missed the Zacks Consensus Estimate. Results were hurt by the continued impact of inflationary pressures, supply chain inefficiencies and drab sales volumes in the company’s business segments. Incidentally, management lowered its earnings per share (EPS) guidance range for fiscal 2023.
Quarter in Detail
Hormel Foods’ earnings of 40 cents per share lagged the Zacks Consensus Estimate of 45 cents per share. The metric declined from 44 cents reported in the year-ago quarter.
Net sales in the quarter were $2,971 million compared to the Zacks Consensus Estimate of $3,097.6 million. The top line decreased 2.4% from $3,044.4 million reported in the year-ago quarter.
Gross profit declined to $495.9 million from $538.7 million reported in the year-ago quarter. Gross profit margin contracted 100 basis points due to an unfavorable mix and continued inflationary pressures. These were somewhat offset by the impact of pricing actions.
Selling, general and administrative expenses came in at $222.1 million compared with almost $226 million reported in the year-ago quarter.
Hormel Foods Corporation Price, Consensus and EPS Surprise
Hormel Foods Corporation price-consensus-eps-surprise-chart | Hormel Foods Corporation Quote
Beginning Oct 31, 2022, Hormel Foods transitioned to three operating segments namely Retail, Foodservice and International.
Net sales in the Retail unit decreased 1.9% year over year to $1,957.8. The downside can be attributed to reduced sales for value-added meats, and snacking and entertaining verticals. These were somewhat offset by rise in net sales growth from global flavors, bacon, convenient meals and proteins as well as emerging brands verticals. Volume in the segment fell 13%. Segmental profit went down 9% in the quarter.
Net sales in the Foodservice segment fell 2.3% to $834.8 million, while volumes fell 6%. The decline in the net sales can be somewhat attributed to reduced net pricing reflecting commodity relief for some categories. Segmental profit went up 1% in the quarter.
Net sales in the International unit fell 8.1% year over year to $178.4 million on reduced sales in China owing to the ongoing COVID-related disruption. That said, branded exports, including SPAM and SKIPPY brands and better results in Brazil, were a breather. Volume in the segment went down 27%. Segment profit went down 27%.
The Zacks Rank #3 (Hold) player ended the quarter with cash and cash equivalents of $599.8 million and long-term debt, less current maturities of $3,292.6 million. In the quarter that ended Jan 29, 2023, net cash provided by operating activities was $203.6 million and capital expenditures totaled $37 million. Management expects to incur capital expenditures of $350 million in fiscal 2023.
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Hormel Foods remains well-placed in the retail, foodservice and international channels and expects to fuel top-line growth. Management expects to see favorable demand for its leading retail brands and Foodservice business. Increased brand investments, innovation and HRL’s initial GoFWD actions are likely to support growth. However, the company’s earnings have been pressured by higher inefficiencies in the supply chain due to increased inventory levels and softness in the snack nuts unit.
HRL projects fiscal 2023 net sales in the range of $12.6-$12.9 billion, indicating 1-3% growth from the fiscal 2022 level. Earnings per share are now envisioned in the range of $1.70-$1.82, down from the previous guidance of $1.83-$1.93.
Shares of Hormel Foods have slipped 9.8% in the past six months compared with the industry’s drop of 13.4%.
Some Top-Ranked Food Bets
Some top-ranked stocks are Conagra Brands CAG, Lamb Weston LW and Mondelez International, Inc. MDLZ.
Conagra, a consumer-packaged goods food company, currently sports a Zacks Rank #1 (Strong Buy). CAG has a trailing four-quarter earnings surprise of 8.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Conagra’s current fiscal-year sales and earnings suggests growth of 7.2% and 12.7%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, which is a frozen potato product company, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 52.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and earnings suggests an increase of 19.3% and 89.9%, respectively, from the year-ago reported number.
Mondelez International, which manufactures, markets, and sells snack food and beverage products, carries a Zacks Rank 2 (Buy). MDLZ has a trailing four-quarter earnings surprise of 7.5%, on average.
The Zacks Consensus Estimate for Mondelez’s current financial year sales and earnings suggests growth of 9% and 7.5%, respectively, from the corresponding year-ago reported figures.
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