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Hormel Foods Q3 profit declines 5% but beats estimates

Hormel Foods Corporation (NYSE: HRL) reported a 5% decline in earnings for the third quarter due to a higher effective tax rate. The bottom line exceeded analysts’ expectations while the top line missed consensus estimates. Further, the company reaffirmed its guidance for the full year 2019.

Net income dropped by 5% to $199.45 million or $0.37 per share. The results reflected the divestiture of the CytoSport business. The effective tax rate rose to 23.6% from 18.4% a year ago, primarily due to the impact of deferred tax remeasurements last year.

Net sales declined 3% to $2.29 billion as lower sales from Grocery Products and Jennie-O Turkey Store offset a slight rise in sales from Refrigerated Foods and International & Other. Total volume was 1.1 billion lbs, down 4% on reported basis and 1% on organic basis.

Hormel Foods Q3 profit declines 5% but beats estimates

Looking ahead into the full year 2019, the company reaffirmed its net sales outlook in the range of $9.50 billion to $10 billion and earnings guidance in the range of $1.71 to $1.85 per share. While the company has yet to see sustained higher pork prices due to African swine fever, it has seen input cost volatility and is expecting further volatility.

For the full year 2019, the bottom line is likely to be impacted by a rise in income taxes as the company now expects the effective tax rate to be in the 18.3% to 20.3% range compared to the previous range of 17.5% to 19.5%. The full-year outlook for capital expenditures decreased to about $250 million, primarily due to weather delays and changes to project timing and scope. The depreciation and amortization expense is predicted to be about $160 million for the full year.

Advertising investments for the full year are expected to be lower compared to the prior year, primarily attributed to the CytoSport divestiture. The earnings pressure from higher avocado prices and peanut butter category dynamics will continue to impact results in Grocery Products in the fourth quarter.

Read: L Brands Q2 earnings

For the third quarter, sales from Refrigerated Foods rose by 1% on strong demand for foodservice items such as Hormel Bacon 1 cooked bacon, Old Smokehouse premium raw bacon and Hormel Fire Braised products. Retail sales of Hormel Black Label convenience bacon and Columbus branded deli items also contributed to overall growth.

Sales from Grocery Products fell by 11% due to the divestiture of CytoSport. Sales from Jennie-O Turkey Store declined by 5% as lower retail and foodservice sales were not fully offset by improved results in the commodity and whole-bird businesses. Sales remained flat at the International & Other segments as improved results in China offset the divestiture of CytoSport.

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