uploads/2015/08/Hormel-Foods-3Q15-Performance-2015-08-261.jpg

What Contributed to Hormel Foods’ 3Q15 Segment Performance?

By

Updated

Refrigerated Foods constituted 48% of Hormel Foods’ net sales and 41% of its total segment operating profit in 3Q15

Refrigerated Food sales increased due to the transaction costs associated with the company’s Applegate acquisition, which it completed on July 13, 2015. Dollar sales were down, reflecting lower pricing compared to last year’s record-high pork markets.

The growth in sales of value-added items was due to the retail sale of Hormel pepperoni and Hormel Gatherings party trays as well as food service sales of Hormel Natural Choice deli meats and fire-braised meats.

Article continues below advertisement

Jennie-O Turkey Store comprised 15% of net sales and 15% of total segment operating profit

The Jennie-O Turkey Store segment’s profits declined by 45% and its sales were down 12%, reflecting the substantial impact of the avian influenza outbreak earlier this year. Previously lost flocks created considerable volume shortfalls in Hormel’s plant operations and sales.

Grocery Products comprised 18% of net sales and 23% of total segment operating profit

The Grocery Products segment’s profit increased by 57%, benefiting from lower input costs. Sales grew by 8%, including the additional net sales of Mega Mex Foods products not reflected in the prior year. Increased sales of Hormel chili and Skippy peanut butter, along with Wholly Guacamole dips in the Mega Mex Foods joint venture, contributed to the gain.

Article continues below advertisement

Specialty Foods comprised 13% of net sales and 13% of total segment operating profit

Specialty Foods delivered a 79% increase in segment profits, with a sales increase of 31%. The contribution was from the addition of muscle milk protein nutrition products and synergies captured within the CytoSport and Century Foods supply chain.

The International & Other segment comprised 6% of net sales and 8% of total segment operating profit

The International & Other segment’s profit increased by 3%, driven by higher royalties and strong performance from Hormel’s China businesses.

Sales fell 6%. The increased sales of Skippy peanut butter didn’t fully offset the decline in pork exports, which were hampered by soft demand in several key markets.

Peers’ performance

Hormel’s (HRL) main peers Pilgrim’s Pride (PPC), Sanderson Farm (SAFM ), Tyson Foods (TSN), and ConAgra Foods (CAG) reported operating margins of 18.42%, 15.28%, 5.59%, and 9.04% in their last reported quarter, respectively. The Consumer Staples Select Sector SPDR Fund (XLP) invests 0.94% of its portfolio in CAG.

Advertisement

More From Market Realist