uploads///Hormel Foods Segments Operating Margins

Which Segments Drove Hormel Foods’ Fiscal 3Q16 Earnings?

Sushree Mohanty - Author

Aug. 23 2016, Updated 2:04 p.m. ET

Refrigerated Foods contributed the most

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 45% of its total segmental operating profit in fiscal 3Q16.

The segment’s profit rose 24% in fiscal 3Q16—driven by favorable market conditions and strong results in its value-added businesses. The Applegate Farms acquisition contributed the most to operating profit growth. Food service value-added products like Hormel Bacon 1 Fully Cooked Bacon, Old Smoke House Bacon, and Hormel Fire Braised meats showed strong growth during the quarter.

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Other segments

The Jennie-O Turkey Store segment’s profit rose 59%. Increased competitive activity in the ground meats category benefited the retail division at the Jennie-O Turkey Store. It was impacted by the avian influenza outbreak last year. Production volumes returned to a normal level. This led to operating profit growth in the food service and deli teams.

The International & Other segment’s profit rose 5% from fiscal 3Q15. Strong results for SKIPPY peanut butter and the SPAM family of products along with the export of fresh pork led to the increased operating profit.

The Grocery Products segment contributed 19% to the total segmental operating profit. This segment’s operating profit was comparable to the same quarter last year. A rise in advertising spend and transaction costs related to Justin’s acquisition accounted for no increase in the operating profit. Earnings from value-added products couldn’t compensate for the rising costs.

The Specialty Foods segment reported an operating profit decline of 13%. The results were impacted by the divestiture of Diamond Crystal Brands. However, the CytoSport business showed strong growth for Muscle Milk protein beverages and powders.

Hormel Foods’ peers in the industry include Campbell Soup (CPB), ConAgra Foods (CAG), and 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 2.8% of its portfolio in Mead Johnson, 2.8% in Hormel, 2.6% in Campbell, and 2.6% in ConAgra. RHS has returned 10.6%, while the S&P 500 Index (SPY) has returned 7% so far in 2016.


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