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Category: Stock Market and Hormel Foods
Date: 22 May 2020 Stock Price: $46.01 We take a look at the 2nd quarter 2020 earnings report of Hormel Foods Corporation, the owner of various branded food products such as Skippy,Spam and Black Label
Our top priority remains the health and safety of our members and team members during this challenging time and I am deeply thankful for the contributions of our dedicated team members this past quarter said Lee Delaney, President and Chief Executive Officer" |
About Hormel Foods Corporation
Hormel Foods Corporation, based in Austin, Minn., is a leading global branded food company with over $9 billion in annual revenues across more than 80 countries worldwide. Its brands include Skippy®, SPAM®, Hormel® Natural Choice®, Columbus®, Applegate®, Justin's®, Wholly®, Hormel® Black Label® and more than 30 other beloved brands. The company is a member of the S&P 500 Index and the S&P 500 Dividend Aristocrats. In 2016, the company celebrated its 125th anniversary and announced its new vision for the future – Inspired People. Inspired Food.™ - focusing on its legacy of innovation.
Overview of Hormel Foods' 2nd quarter 2020 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Net sales: $2.422 billion (up from $2.344 billion for the same quarter in the previous year)
- Net sales increased by 3.3% over the last 12 months
- Cost of products sold: $1.945 billion (up from $1.875 billion for the same quarter in the previous year)
- Cost of products sold increased by 3.7% over the last 12 months
- A bit of margin squeeze being experienced by Hormel Foods as revenue increased but at a rate slower than the cost of products sold
- Net earnings: $227.615 million (down from $282.636 million for the same quarter in the previous year)
- Diluted earnings per share: $0.42 (down from $0.52 for the same quarter in the previous year)
- PE ratio of Hormel Foods: 27.3
- Diluted number of shares in issue: 546.373 million (down from 546.330 million for the same quarter of the previous year)
- Dividend per share for the quarter: $0.2325
- Dividend yield of Hormel Foods: 2%
- Cash and equivalents: $606.073 million
- Cash and equivalents per share: $1.10
- Cash and equivalents makes up 2.4% of Hormel's current market capital
- Cash and equivalents makes up 26.9% of Hormel's total assets
- Inventories: $1.048 billion
- Inventories makes up 12.5% of Hormel's total assets
- Hormel Foods inventories increased by 0.6% over the last 12 months
- Goodwill: $2.682 billion
- Goodwill makes up 31.9% of Hormel Foods' total assets
- Cash generated from operations :: $359.872 million
- Cash generated from operations per share : $0.65
Hormel Food Corporation management commentary on their 2nd quarter 2020 earnings
AUSTIN, Minn., May 21, 2020 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the second quarter of fiscal 2020. All comparisons are to the second quarter of fiscal 2019 unless otherwise noted.
The impact of the Sadler's Smokehouse acquisition (March 2020) and the CytoSport divestiture (April 2019) are excluded in the presentation of the non-GAAP measures of organic volume and organic net sales. The impact of the one-time gain associated with the CytoSport divestiture last year is excluded from prior year adjusted pretax earnings and adjusted diluted earnings per share. Operating free cash flow is also presented as a non-GAAP metric.
EXECUTIVE SUMMARY
The impact of the Sadler's Smokehouse acquisition (March 2020) and the CytoSport divestiture (April 2019) are excluded in the presentation of the non-GAAP measures of organic volume and organic net sales. The impact of the one-time gain associated with the CytoSport divestiture last year is excluded from prior year adjusted pretax earnings and adjusted diluted earnings per share. Operating free cash flow is also presented as a non-GAAP metric.
EXECUTIVE SUMMARY
- Volume of 1.2 billion lbs., up 4%; organic volume1 up 7%
- Record net sales of $2.4 billion, up 3%; organic net sales1 up 6%
- Pretax earnings of $286 million, down 10%; down 5% to adjusted pretax earnings1 last year primarily due to lower investment income
- Operating margin of 12.1%, compared to 13.3% last year
- Effective tax rate of 20.6%, compared to 11.1% last year
- Diluted earnings per share of $0.42, down 19%; down 9% to adjusted diluted earnings per share1 last year
- Cash flow from operations of $360 million, up 102%
- Operating free cash flow1 of $280 million, up 115%
EXECUTIVE COMMENTARY AND OUTLOOK
"As a global branded food company, we play a critical role in providing safe, high-quality food during this challenging time," said Jim Snee, chairman of the board, president and chief executive officer. "I am incredibly proud of the heroic efforts of our production professionals, who have risen to the challenge and continue to produce food with a sense of purpose and pride. Our commitment is to ensure every Hormel Foods employee is safe and healthy and can continue to meet the needs of our customers and consumers."
"Our financial results this quarter demonstrate the value of our balanced business model and our team's ability to react to a rapidly changing environment," Snee said. "We continue to excel and gain market share in channels that are open and available to us, namely the retail channel. We know consumers are looking for trusted brands, and we will continue investing in our leading brands such as SPAM®, SKIPPY®, Jennie-O®, Hormel® Natural Choice® and Applegate®. Our strong balance sheet and stable cash flows give us the confidence to lean into our business and make the right long-term decisions for our team members, suppliers, customers and shareholders. Even though the COVID-19 pandemic has caused a dramatic shift in consumer behavior, operational disruptions and extreme volatility in raw material markets, we remain financially strong and well-positioned to weather the pandemic."
In the second quarter, the company absorbed approximately $20 million in incremental supply chain costs primarily related to lower production volumes, employee bonuses and enhanced safety measures in its production facilities. The company expects to absorb another $60-$80 million in the second half of the year, weighted primarily to the third quarter. The majority of the increased costs are expected to be temporary.
"Our leadership team has extensive experience effectively managing through volatile input cost markets and changes in consumer behavior, but we have always done so with a fully functioning supply chain across the industry," Snee said. "The COVID-19 pandemic has created industry uncertainty as to whether we will experience further interruptions. Additionally, the foodservice industry is in the very early stages of a recovery, and we are actively monitoring the pace and magnitude of this recovery. As a result of this uncertainty, we are withdrawing our full-year sales and earnings guidance."
COVID-19 RESPONSE
"Employee safety has been and will continue to be our top priority, and this is why we are committed to making the necessary investments to keep our team members safe," Snee said. "Our industry-leading effort to enhance safety protections for our team members is complemented by our new awareness initiative, called KEEP COVID OUT!, which reinforces the importance of taking preventive measures at our production facilities and in our communities where we work and live."
Enhanced safety procedures have been implemented across the company's facilities, including providing personal protective equipment for all production team members, frequent disinfecting of high-touch areas, reconfiguration of common areas and workstations, temperature and wellness screenings, revised shift scheduling, reducing production line speeds, new guidelines on carpooling, more extensive social distancing measures throughout each facility and where possible, providing remote work opportunities and facilitating access to rapid testing for employees. The company's safety procedures meet or exceed CDC and OSHA guidelines, ensuring that its practices continue to reflect best practices in the food industry. The company has also announced over $11 million in bonuses to all full- and part-time plant production team members.
"I have the highest level of confidence that we have the right strategy, sound fundamentals, best-in-class management and the financial strength to thrive in this dynamic marketplace," Snee said. "I appreciate the work happening across all areas of our company and know we will continue do what is best for our team members and customers."
"As a global branded food company, we play a critical role in providing safe, high-quality food during this challenging time," said Jim Snee, chairman of the board, president and chief executive officer. "I am incredibly proud of the heroic efforts of our production professionals, who have risen to the challenge and continue to produce food with a sense of purpose and pride. Our commitment is to ensure every Hormel Foods employee is safe and healthy and can continue to meet the needs of our customers and consumers."
"Our financial results this quarter demonstrate the value of our balanced business model and our team's ability to react to a rapidly changing environment," Snee said. "We continue to excel and gain market share in channels that are open and available to us, namely the retail channel. We know consumers are looking for trusted brands, and we will continue investing in our leading brands such as SPAM®, SKIPPY®, Jennie-O®, Hormel® Natural Choice® and Applegate®. Our strong balance sheet and stable cash flows give us the confidence to lean into our business and make the right long-term decisions for our team members, suppliers, customers and shareholders. Even though the COVID-19 pandemic has caused a dramatic shift in consumer behavior, operational disruptions and extreme volatility in raw material markets, we remain financially strong and well-positioned to weather the pandemic."
In the second quarter, the company absorbed approximately $20 million in incremental supply chain costs primarily related to lower production volumes, employee bonuses and enhanced safety measures in its production facilities. The company expects to absorb another $60-$80 million in the second half of the year, weighted primarily to the third quarter. The majority of the increased costs are expected to be temporary.
"Our leadership team has extensive experience effectively managing through volatile input cost markets and changes in consumer behavior, but we have always done so with a fully functioning supply chain across the industry," Snee said. "The COVID-19 pandemic has created industry uncertainty as to whether we will experience further interruptions. Additionally, the foodservice industry is in the very early stages of a recovery, and we are actively monitoring the pace and magnitude of this recovery. As a result of this uncertainty, we are withdrawing our full-year sales and earnings guidance."
COVID-19 RESPONSE
"Employee safety has been and will continue to be our top priority, and this is why we are committed to making the necessary investments to keep our team members safe," Snee said. "Our industry-leading effort to enhance safety protections for our team members is complemented by our new awareness initiative, called KEEP COVID OUT!, which reinforces the importance of taking preventive measures at our production facilities and in our communities where we work and live."
Enhanced safety procedures have been implemented across the company's facilities, including providing personal protective equipment for all production team members, frequent disinfecting of high-touch areas, reconfiguration of common areas and workstations, temperature and wellness screenings, revised shift scheduling, reducing production line speeds, new guidelines on carpooling, more extensive social distancing measures throughout each facility and where possible, providing remote work opportunities and facilitating access to rapid testing for employees. The company's safety procedures meet or exceed CDC and OSHA guidelines, ensuring that its practices continue to reflect best practices in the food industry. The company has also announced over $11 million in bonuses to all full- and part-time plant production team members.
"I have the highest level of confidence that we have the right strategy, sound fundamentals, best-in-class management and the financial strength to thrive in this dynamic marketplace," Snee said. "I appreciate the work happening across all areas of our company and know we will continue do what is best for our team members and customers."
Hormel Food Corporation (NYSE:HRL) stock price history
The image below, obtained from Google shows the stock price history of Hormel Foods (NYSE:HRL) for the last 5 years. And its been a pretty good time for Hormel stockholders. 5 years ago the stock of Hormel was trading at $28 and its currently trading at $46.01 That's a return of 64.3% provided to Hormel stockholders over the last 5 years.
The stock of Hormel is trading at a lot closer to its 52 week high of $51.53 than it is to its 52 week low of $37 which to us is a clear indication that the short term sentiment and momentum of Hormel Food stock is positive.
The stock of Hormel is trading at a lot closer to its 52 week high of $51.53 than it is to its 52 week low of $37 which to us is a clear indication that the short term sentiment and momentum of Hormel Food stock is positive.
Recent Google search trends for Hormel Foods stock price and HRL stock price
The graphic below shows the trends in Google searches for Hormel Foods stock price and HRL stock price over the last 12 months in the United States as obtained from Google Trends. As it shows HRL stock price is searched for more often than Hormel Food stock price.
Hormel Foods (NYSE: HRL) vs Tyson Foods (NYSE: TSN)
The image below shows the stock price performance of Hormel Foods (HRL) compared to the stock performance of Tyson Foods (TSN) over the last 3 years. The stock of Hormel has easily outperformed that of Tyson Foods with it increasing 33.36% over the three year period while the stock of Tyson declined slightly by -0.2% over the three year priod.
Recent coverage of Hormel Foods Corporation
The extract below covers the latest regarding Hormel Foods as obtained from MarketWatch.com
Shares of Hormel Foods Corp. HRL, -4.12% edged up 0.1% i premarket trading Thursday, after the parent of packaged foods, which brands include SPAM, Skippy and Hormel, reported a fiscal second-quarter profit that fell shy of expectations but sales that rose above forecasts, boosted by strength in grocery product sales amid the COVID-19 pandemic. Net income for the quarter to April 26 fell to $227.7 million, or 42 cents a share, from $282.4 million, or 52 cents a share, in the year ago period. The FactSet consensus was for earnings per share of 43 cents. Sales rose 3.3% to $2.42 billion, above the FactSet consensus of $2.39 billion, as sales rose 7.5% for grocery products and 12.4% for Jennie-O Turkey Store but fell 0.8% for refrigerated foods. U.S. retail net sales grew 16% and deli net sales increased 5%, while foodservice sales fell 21%. "In the second quarter, the company absorbed approximately $20 million in incremental supply chain costs primarily related to lower production volumes, employee bonuses and enhanced safety measures in its production facilities," the company stated, in response to the COVID-19 pandemic. "The company expects to absorb another $60-$80 million in the second half of the year, weighted primarily to the third quarter." The stock has gained 7.2% over the past three months through Wednesday, while the S&P 500 SPX, -0.77% has lost 11.0%.
Read the full article here
Shares of Hormel Foods Corp. HRL, -4.12% edged up 0.1% i premarket trading Thursday, after the parent of packaged foods, which brands include SPAM, Skippy and Hormel, reported a fiscal second-quarter profit that fell shy of expectations but sales that rose above forecasts, boosted by strength in grocery product sales amid the COVID-19 pandemic. Net income for the quarter to April 26 fell to $227.7 million, or 42 cents a share, from $282.4 million, or 52 cents a share, in the year ago period. The FactSet consensus was for earnings per share of 43 cents. Sales rose 3.3% to $2.42 billion, above the FactSet consensus of $2.39 billion, as sales rose 7.5% for grocery products and 12.4% for Jennie-O Turkey Store but fell 0.8% for refrigerated foods. U.S. retail net sales grew 16% and deli net sales increased 5%, while foodservice sales fell 21%. "In the second quarter, the company absorbed approximately $20 million in incremental supply chain costs primarily related to lower production volumes, employee bonuses and enhanced safety measures in its production facilities," the company stated, in response to the COVID-19 pandemic. "The company expects to absorb another $60-$80 million in the second half of the year, weighted primarily to the third quarter." The stock has gained 7.2% over the past three months through Wednesday, while the S&P 500 SPX, -0.77% has lost 11.0%.
Read the full article here
Hormel Foods Corporation (NYSE:HRL) stock valuation
So based on Hormel Foods latest earnings report ad their fiscal guidance what do we value the stock of Hormel at? Based on their earnings report and guidance provided our valuation model provides a target (full value price) for Hormel Foods at $29.20 a stock (down a bit from our 1st quarter 2020 earnings report valuation). We therefore believe the stock of Hormel is overvalued
We recommend that long term fundamental and value investors look to enter a stock at least 10% below our target (full value) price which in this case is $29.20. A good entry point into Hormel Food stock would therefore be at $26.30 or below.
We expect the stock of Hormel Foods to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
We recommend that long term fundamental and value investors look to enter a stock at least 10% below our target (full value) price which in this case is $29.20. A good entry point into Hormel Food stock would therefore be at $26.30 or below.
We expect the stock of Hormel Foods to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
Next earnings release of Hormel Foods
It is expected that Hormel Foods will release their 3rd quarter 2020 earnings report towards the end of August 2020