uploads///Hormel Foods Segments Operating Margins

Which Segments Contributed to Hormel Foods’ Fiscal 1Q16 Earnings?



Refrigerated Foods

Hormel Foods (HRL) operates through five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other. The Refrigerated Foods segment accounted for 51% of Hormel Foods’ total sales and 45% of its total segmental operating profit in fiscal 1Q16. The segment’s profit rose 65% in fiscal 1Q16, driven by higher pork operating margins and strong results in its value-added businesses. The Applegate Farms acquisition also contributed to this segment’s performance.

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Other segments

The Grocery Products segment contributed 17% to total net sales and 17% to total segmental operating profit. This segment delivered a profit increase of 26%. The Grocery Products segment’s performance was driven by favorable raw material costs and improved operational and supply chain efficiencies, which were due to the closure of the plant in Stockton, California. Lower canned meat sales and favorable results for Hormel bacon toppings, Chi-Chi’s salsas, and Wholly Guacamole products also affected the segment’s performance.

The Jennie-O Turkey Store segment’s profit fell 2%, and sales dropped 15%. The segment seems to still be recovering from the impact of the avian influenza outbreak early in 2015. Previously lost flocks generated huge volume deficits in plant operations and sales. This segment, however, contributed 16% to total net sales and 24% to total segmental operating profit.

The Specialty Foods segment reported a strong operating profit rise of 44%. The results were driven by synergies captured within the CytoSport and Century Foods supply chain along with favorable input costs. The International & Other segment’s profit rose 1% from fiscal 1Q15, while sales fell 7%. Softer sales in key markets and unfavorable currency rates resulted in the segmental performance. This was compensated by Skippy peanut butter sales gains.

Hormel Foods’ competitors in the industry include The Campbell Soup Company (CPB), ConAgra Foods (CAG), and the Mead Johnson Nutrition Company (MJN). They saw operating profits of $315 million, $303 million, and $196 million respectively, for their last reported quarters. The Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS) invests 2.3% of its portfolio in MJN. The Vanguard Consumer Staples ETF (VDC) invests 1.0% of its holdings in CAG.

In the next part of this series, we’ll look at what Wall Street analysts are recommending for Hormel Foods after its fiscal 1Q16 results.


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