Long story made short, Hormel Foods (HRL 31.70, -2.22) trades about 6.5% lower today to fresh 22-month lows as the company cut its forecast for FY17 earnings and reported a less than impressive Q3 print in addition to buying Brazilian meat company Cidade do Sol for $104 million.
For the past three fiscal quarters, HRL has been underperforming market estimates as 4Q16, 1Q17 and 2Q17 results were all short of what the Street was expecting. That being said, shares of the Minnesota-based HRL have been on a steady decline basically since February of 2016 (coincidentally, all-time highs were in February 2016 at $45.72). Since that time, shares have fallen about 30% vs the S&P 27.5% advance over the same period.
Getting back to the results, as mentioned HRL missed market expectations by reporting Q3 earnings of $0.34 per share on revenues which fell 4.1% compared to last year to $2.21 billion. Overall, volume was down 9% while Non-GAAP adjusted volumes were down 1%.
Refrigerated Foods sales were down about 6%, primarily related to the divestiture of the Farmer John business. Foodservice products such as HORMEL BACON 1 fully cooked bacon and HORMEL pepperoni and retail products such as HORMEL BLACK LABEL bacon, HORMEL pepperoni, and HORMEL GATHERINGS party trays posted strong sales growth.
Grocery Products sales were up 6% aided by strong sales of WHOLLY GUACAMOLE dips, an additional period of JUSTIN'S specialty nut butters, and higher sales of SKIPPY peanut butter products. Segment profit increased 10% as higher input costs for beef trim, pork trim, and avocadoes were offset by advertising reductions and incremental earnings from an additional period of JUSTIN'S specialty nut butters.
Specialty Foods sales dipped 7% primarily related to one extra period of Diamond Crystal Brands in fiscal 2016 and lower sales of MUSCLE MILK protein products. Segment profit declined 14% as pricing of contract packaging sales did not keep pace with input cost increases. Lower sales for MUSCLE MILK ready-to-drink protein products also contributed to the decline in segment profit.
International sales increased 1% and segment profit decreased 16% driven by lower results in China, reflecting startup costs for HRL’s Jiaxing production facility and the closing of their Shanghai facility. And lastly, Jennie-O Turkey Store sales were 9% lower and segment profit declined 20%. These decreases are primarily due to lower turkey commodity prices, pricing pressure from competing proteins, and increased operating expenses. A reduction in harvest volume was the primary factor to the decline in sales and volume.
Looking ahead, HRL sees has trimmed FY17 EPS guidance and now expects earnings of $1.54-1.58 (down from $1.65-1.71) for the full year.
Also, HRL announced it has acquired Cidade do Sol, a value-added meats company in Brazil. The company offers more than 70 products in 15 categories including authentic meats such as mortadella, sausage and salami for Brazilian retail and foodservice markets under the popular Ceratti brand. The purchase price was about $104 million, subject to customary working capital adjustments. Cidade do Sol will report into Hormel Foods International Corporation.