Hormel Foods Corporation HRL delivered second-quarter fiscal 2024 results, wherein the top and bottom lines declined year over year, and net sales missed the Zacks Consensus Estimate. Nonetheless, earnings came in better than expected, and the company continued to see strength in its Foodservice business and improvement in the International unit.
The first-half show, expected strength in the Foodservice and International segments, ongoing supply chain enhancements and gains from the transform and modernize initiative encouraged management to pull up the lower end of its bottom-line view for fiscal 2024.
Quarter in Detail
Hormel Foods’ adjusted earnings of 38 cents per share surpassed the Zacks Consensus Estimate of 35 cents. However, the bottom line declined from the 40 cents per share recorded in the same period last year.
Hormel Foods Corporation Price, Consensus and EPS Surprise
Hormel Foods Corporation price-consensus-eps-surprise-chart | Hormel Foods Corporation Quote
Net sales of $2,887.4 million declined around 3% year over year and came below the Zacks Consensus Estimate of $2,987 million. Volumes declined from 1.10 billion lbs. to 1.06 billion lbs. in the second quarter.
The gross profit came in at $503.8 million, up from $491.4 million reported in the year-ago quarter.
Selling, general and administrative (SG&A) expenses amounted to $266.7 million for the quarter, an increase from $212.5 million in the year-ago period. Advertising investments came in at $44 million, up from $35 million in the year-ago period. Advertising investments are expected to escalate year over year in 2024.
The adjusted operating income came in at $276 million. The adjusted operating margin contracted 30 basis points to 9.6%.
Segmental Details
Net sales in the Retail unit dropped 6.7% year over year to $1,788.6 million. The downside was caused by reduced volume and pricing for whole-bird turkeys, as well as soft sales in the convenient meals and proteins space. Total volumes were down 5.4% due to value-added meats, partly offset by growth in bacon and emerging brands. Segment profit went down 14% in the quarter.
Net sales in the Foodservice segment increased 5.7% to roughly $932 million, with volumes up 2.9%. The upside was backed by strength in the turkey, bacon and premium prepared proteins categories. Segment profit jumped 3% in the quarter.
Net sales in the International unit fell 7.3% year over year to $166.8 million, whereas volumes tumbled 7.2%. The sales decline resulted from reduced commodity export volumes and soft sales in China, partly made up by strength in SPAM luncheon meat and refrigerated exports. Segment profit surged 71%.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $1,486.4 million and total long-term debt (excluding current maturities) of $2,852.6 million.
Quarter to date, cash flow from operations was $236 billion, while capital expenditures in the quarter were $60 million. Management anticipates capital expenditure of $280 million in fiscal 2024.
Guidance
For fiscal 2024, HRL continues to expect net sales in the range of $12.2-$12.5 billion, which suggests 1-3% growth.
However, adjusted earnings per share is envisioned to be $1.55-$1.65 now compared with the earlier view of $1.51-$1.65.
The fiscal 2024 guidance includes sales and earnings pressure from a major decrease in whole bird turkey markets. Additionally, it includes the expected effects of an unplanned production disruption at its Suffolk, VA, facility. However, the company’s transform and modernize initiative is likely to aid earnings.
Shares of this Zacks Rank #3 (Hold) company have risen 8.8% in the past six months compared with the industry’s growth of 18.9%.
Better-Ranked Food Bets
Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 22.5% and 59.3%, respectively, from the year-ago reported numbers.
Tyson Foods TSN, a meat product giant, currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for TSN’s current fiscal-year earnings indicates an advancement of around 91% from the year-ago reported figure.
Tyson Foods has a trailing four-quarter earnings surprise of 24.4%, on average.
Utz Brands Inc. UTZ manufactures a diverse portfolio of salty snacks and currently carries a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 24.6% from the year-ago reported numbers.
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