Hormel Foods Corporation, a leading global branded food company, reported results for the third quarter of fiscal 2022. All comparisons are to the third quarter of fiscal 2021 unless otherwise noted.
Executive summary – third quarter
- Record net sales of $3.0 billion, up 6%; organic net sales up 3%.
- Operating income of $291 million, up 40%; up 17% compared to adjusted operating income of $248 million last year.
- Operating margin of 9.6%, compared to 7.2% last year and compared to adjusted operating margin1 of 8.7% last year.
- Pretax earnings of $290 million, up 42%; up 18% compared to adjusted pretax earnings of $245 million last year.
- Effective tax rate of 24.5%, compared to 13.3% last year.
- Diluted earnings per share of $0.40, up 25%; up 3% compared to adjusted diluted earnings per share1 of $0.39 last year.
- Cash flow from operations of $186 million, up 143%.
Jim Snee, chairman of the board, president and chief executive officer, stated in the announcement, “We delivered another quarter of record sales and double-digit operating income growth. In the current environment, delivering seven straight quarters of record sales and four consecutive quarters of earnings growth is a notable achievement and speaks to the effectiveness of our strategy and the importance of our brands in uncertain times. Our team’s execution played a pivotal role in our growth this quarter, as together, we overcame significant challenges, including continued broad-based inflationary pressures, persistent upstream and downstream supply chain disruptions, limited turkey supply, and impacts in China from COVID-related restrictions and temporary plant shutdowns.
“We continued to benefit from our balanced business model during the quarter, led by outstanding contributions from Jennie-O Turkey Store and Refrigerated Foods,” Snee added. “The Jennie-O Turkey Store segment significantly outperformed our profit expectations for the quarter as the team managed limited turkey supply effectively and maximized operational performance. Refrigerated Foods delivered double-digit, value-added earnings growth on retail and foodservice items, more than offsetting lower commodity profitability. Similar to last quarter, impressive performance from these businesses helped mitigate higher input and supply chain costs across all segments. Earnings growth was also supported by the Planters snack nuts business, which continues to meet our expectations.”
“Our brands remain healthy, continue to generate growth and are responding well to pricing actions,” Snee continued. “Consumers and operators continued to engage with our brands due to their value, convenience and versatility. The team drove volume, sales and share gains at retail for brands such as SKIPPY, Hormel Gatherings, Hormel chili, Dinty Moore and Mary Kitchen. Likewise, demand for our foodservice products was strong, as operators again turned to our items to help mitigate labor pressures and diversify menu offerings. Value-added products such as our premium bacon and sausage, sliced meats and our line of premium prepared proteins performed exceptionally well this quarter. Our strategy of building a portfolio with both premium and value offerings continued to serve us well as macroeconomic conditions pressure some of our customers, consumers and operators. Our teams remain keenly focused on the long-term needs of the business, our strategic priorities and protecting the equity of our leading brands.”
Outlook
“From a top-line and bottom-line perspective, the business remains healthy as we continue to navigate some of the most difficult operating conditions in the company’s 130-year history,” Snee said in the announcement. “We are confident in our ability to exceed our previous sales guidance due to strong demand for our foodservice and center store grocery brands, higher turkey markets and the pricing actions we have taken across the portfolio. Our long-term strategy to meet consumers where they want to eat, with a broad portfolio of products, has been crucial to our growth in the current environment.
“We expect elevated cost inflation to persist, primarily related to operations, logistics and raw material inputs. As a result, we are revising our full year earnings guidance range. We view the majority of the escalated cost pressures we are currently absorbing as transient and likely to subside over the coming quarters. We will continue to leverage our balanced business model and experienced management team as we navigate these difficult business conditions.”
Strategic evolution update
“We recently announced the next step in our strategic evolution, our Go Forward (GoFWD) initiative,” Snee continued in the announcement. “We will be organizing our business into three empowered segments to support our six strategic priorities, better align our business to the needs of our customers, consumers and operators, and drive sustainable long-term growth. Our new operating model is a culmination of our recent strategic actions, which included numerous portfolio-building acquisitions, such as the Planters® snack nuts business, the creation of One Supply Chain, the modernization of our technology and e-commerce capabilities, and most recently, our transformational efforts at Jennie-O Turkey Store. This new structure will create a more aligned organization that is accountable, nimble and focused on creating the Hormel Foods of the future.”
The company is transitioning to three operating segments – Retail, Foodservice and International – and will begin operating under the new model on Oct. 31, 2022. Earnings will be reported under this structure beginning in the first quarter of fiscal 2023. The three new segments will continue to be supported by the company’s One Supply Chain team and corporate functions. Additionally, the company will be standing up a Brand Fuel center of excellence, which will house enterprise-wide brand management expertise, marketing support, insights-led innovation and analytical capabilities to further enable data-driven decisions. This center will also incorporate the digital experience group, the company’s e-commerce and digital content team that leads the company’s brands and businesses in the virtual marketplace.
Coinciding with the announcement of the new operating model, the company disclosed the following senior leadership appointments:
The company’s largest segment – Retail – will be led by Deanna Brady, as executive vice president of Retail. Brady currently oversees the company’s Refrigerated Foods segment.
The Foodservice segment will be led by Mark Ourada, group vice president of Foodservice.
Swen Neufeldt will continue to lead the company’s international business as group vice president, president of Hormel Foods International Corporation.
“Our balanced model, strategic investments and experienced management team have served us well in the past and will be key to our success in the coming years,” Snee continued in the announcement. “Under the leadership of Deanna, Mark and Swen, we expect to drive sustainable growth in line with our long-term growth goals. Each of these leaders has over 25 years of experience with the company and proven reputations for delivering results. I could not be more excited for the future of our company.”
Changes to the company’s operating segments have no impact on historical consolidated results of operations, financial position or cash flows. Recast financial information will be provided during the first quarter of fiscal 2023 to aid in comparability to historical financial data.
Channel highlights – third quarter
Demand across the company’s U.S. channels remained elevated for center store items at retail and value-added foodservice products. The company benefited from pricing actions to offset inflationary pressures across many categories and contributions from the Planters snack nuts business. Sales for the international channel declined, primarily due to lower export sales.
