Hormel Foods Corporation, a leading global branded food company, reported results for the second quarter of fiscal 2022.
All comparisons are to the second quarter of fiscal 2021 unless otherwise noted.
Executive summary
Second quarter
- Volume of 1.2 billion lbs., down 2%; organic volume down 8%
- Record net sales of $3.1 billion, up 19%; organic net sales up 10%
- Operating income of $335 million, up 16%
- Operating margin of 10.8%, compared to 11.1% last year and 10.5% last quarter
- Pretax earnings of $322 million, up 10%
- Effective tax rate of 18.7%, compared to 22.1% last year
- Diluted earnings per share of $0.48, up 14% compared to last year
- Cash flow from operations of $193 million, up 24%
Executive commentary
“We delivered strong top- and bottom-line growth during the quarter, leveraging our balanced business model, leading brands and experienced management team,” Jim Snee, chairman of the board, president and chief executive officer, said in the announcement. “The second quarter marked our sixth consecutive quarter of record sales, and we achieved earnings growth for the third consecutive quarter. Operating margin increased compared to the first quarter, an indication that our efforts to mitigate inflationary pressures are working. We also made meaningful progress across our supply chain, where our investments in capacity and a recovery in staffing levels contributed to improved fill rates, inventories and production volumes. These excellent results further demonstrate our team’s ability to execute in difficult operating conditions and support the value of our clear strategic priorities.”
“Consumer and operator demand for our leading brands remained robust during the quarter, and we continue to realize the benefits of investments in our direct sales force, diversified product portfolios, increased advertising, brand building and innovation,” Snee said. “Double-digit organic sales growth was driven by our foodservice businesses, retail brands such as WHOLLY, SKIPPY, HormelSquare Table, SPAM, Hormel Gatherings, Dinty Moore and Jennie-O, and strong contributions from our food-forward brands, including Columbus and Applegate. Results for our Planters snack nuts business improved throughout the quarter, and we are realizing the positive impact of the scale this business brings to our company, especially in the important and fast-growing convenience store channel. Our brands have responded well to pricing actions, and we are actively managing pricing and promotional levers to ensure the long-term health of our brands and the categories in which they compete.”
“Earnings growth this quarter was a result of the balance we have built across our business,” Snee said. “Our Jennie-O Turkey Store segment had an outstanding quarter, as its ability to adjust to current market conditions and meet strong foodservice demand drove higher results. Likewise, our foodservice businesses in Refrigerated Foods were able to manage inflation and deliver excellent volume gains. Strong performances in these businesses offset elevated freight costs across all segments and a decline in Grocery Products, which absorbed higher costs for certain inputs, such as avocados, protein and packaging. As we continue to operate in this highly inflationary environment, we will remain focused on improving our supply chain performance, maximizing promotional effectiveness and mix, and, where necessary, taking additional pricing actions to mitigate persistent inflationary pressures.”
“After an excellent first quarter and significant profit growth in the second quarter, our Jennie-O Turkey Store team is facing an uncertain period ahead,” Snee said. “We are actively managing the impacts from highly pathogenic avian influenza (HPAI) on turkey supply and will take the appropriate actions to protect the health of the turkeys across our supply chain. Similar to what we experienced in 2015, HPAI is expected to have a meaningful impact on industry poultry supplies over the coming months. Beginning in the third quarter, we anticipate large supply gaps in the Jennie-O Turkey Store vertically integrated supply chain, caused by flock losses to date. Our dedicated and experienced team is managing through operational challenges caused by the outbreaks and adapting to changing business conditions. The team has shown unwavering commitment and resolve in the face of a very difficult situation.”
Outlook
“We have a responsibility to protect the equity of our brands and ensure we meet the needs of our customers, consumers and operators,” Snee said. “Based on our strong first-half performance and current outlook for the full year, we are reaffirming our sales expectations and narrowing our earnings guidance range. We are confident in our ability to deliver our sales guidance, given robust demand for our brands across the retail, foodservice and international channels, improvements in our supply chain, our investments in capacity and from strategic pricing actions. From an earnings perspective, we expect a strong finish to the year from our Refrigerated Foods business. We anticipate a fourth-quarter improvement from pricing actions taken across our Grocery Products portfolio. Additionally, we are navigating the impact of HPAI on the Jennie-O Turkey Store supply chain and external factors affecting the International & Other segment, including current export logistics challenges and COVID-related lockdowns in China. Our teams have actions in place to manage through these challenges and drive results for the company.”
