Challenging market conditions in commodity pork and turkey were offset by strong demand for value-added food and beverages manufactured by Hormel Foods Corp. during the third quarter of fiscal 2018.
“Our long-term strategy is sound, and our experienced leadership team is executing this strategy,” said James P. Snee, chairman, president and chief executive officer, Aug. 23 during a conference call with securities analysts. “We achieved record sales and earnings in the third quarter as we managed through foreign trade uncertainty, increased freight costs and commodity market volatility.”
Net income for the quarter ended July 29 was $210,243,000, equal to 40c per share on the common stock, and an increase when compared with the same period of the previous year when the company earned $182,508,000, equal to 35c per share.
Sales for the quarter rose to $2,359,142,000 from $2,207,375,000 the year prior.
The company’s largest business unit, Refrigerated Foods, which includes such brands as Applegate, Hormel and Natural Choice generated a 10% increase in sales during the quarter to $1,195,763 when compared with the same period of the previous year. Operating profit ticked up slightly to $138,497,000 from $138,314,000 the year prior.
“Refrigerated Foods grew volume 5% and sales 10%,” Mr. Snee said. “In addition to strong value-added sales growth, the inclusion of the Fontanini and Columbus acquisitions also contributed to improved sales.
“A reduction in hog harvest volume of 4% drove an organic volume decline of 2% and an organic sales decline of 3%. Pricing declined due to lower pork markets year-over-year.”
Grocery Products sales declined slightly to $617,727,000 during the quarter from $618,859,000. Operating profit rose 4% to $85,540,000.
“Grocery Products had a solid quarter,” Mr. Snee said. “We are pleased with the continued growth from our core Grocery Products portfolio as that team grew sales mid-single digits. Brands such as Skippy, Hormel Chili, Wholly Guacamole and Herdez all delivered excellent sales growth this quarter. Total Grocery Products sales were flat due to declines in CytoSport and our contract manufacturing business.
“Earnings grew 4% as our core Grocery Products portfolio continued to deliver excellent results and were able to offset declines in contract manufacturing, increased advertising investments and increased freight costs. The team at CytoSport continues to work on improving their business results. While volume and sales declined, earnings grew for the quarter due to lower selling, general and administrative expenses.”
The company’s Jennie-O Turkey Store business saw sales rise 8% to $398,058,000 and operating profit fall 23% to $34,625,000. Lower whole bird and commodity prices were cited as reasons for the sharp fall in operating profit. In the fourth quarter, management expects Jennie-O Turkey Store earnings to decline compared to last year.
In the International business sales rose 11% an operating profit rose 9%.
“Sales increased on stronger exports of Spam luncheon meat and Skippy peanut butter, favorable results in China and the addition of the Ceratti business in Brazil,” Mr. Snee said. “We continue to gain momentum in China as we grow distribution for our Spam family of products. International segment profit increased 9% despite lower fresh pork export earnings, higher advertising investments and increased freight costs.”
Looking ahead, Mr. Snee said the company remains on track to meet its earnings guidance of $1.81 to $1.95 per share.
“We expect a strong finish to the year from Refrigerated Foods as they continue to grow value-added sales and profits while managing through commodity volatility,” he said. “We anticipate the International segment to generate earnings growth in the fourth quarter given the positive momentum that team has with branded exports and improving business results in China. We do see risk from tariffs, which could negatively impact fresh pork exports and the segment’s results. We anticipate a slight decline in earnings for Grocery Products. We expect to generate ongoing growth in the core center store portfolio while managing through continued declines in contract manufacturing.”