Hormel Foods Corporation (HRL)
F3Q2010 Earnings Call Transcript
August 20, 2010 9:30 am ET
Kevin Jones – Director, IR
Jeff Ettinger – Chairman, President and CEO
Jody Feragen – SVP and CFO
Farha Aslam – Stephens, Inc.
Christina McGlone – Deutsche Bank North America
Jonathan Feeney – Janney Montgomery Scott
Diane Geissler – CLSA
Adam Josephson – KeyBanc Capital Markets
Lindsay Drucker Mann – Goldman Sachs
Eric Larson – Soleil Securities Corporation
Robert Moskow – Credit Suisse North America
Mike Hamilton – RBC Dain Rauscher
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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hormel Foods third quarter earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for question. (Operator instructions) This conference is being recorded today, Friday, August 20, 2010.
I would now like to turn the conference over to Mr. Kevin Jones. Please go ahead, sir.
Good morning. Welcome to the Hormel Foods conference call for the third quarter of fiscal 2010. We released our results this morning before the market opened around 6.30 AM Central Time. If you did not receive a copy of the release, you can find it on our Web site at www.hormelfoods.com under the Investors section.
On our call today is Jeff Ettinger, Chairman of the Board, President and Chief Executive Officer; and Jody Feragen, Senior Vice President and Chief Financial Officer. Jeff will provide a review of the operating results for the quarter, and then Jody will provide detailed financial results for the quarter. The line will be open for questions following Jody’s remarks.
Please limit yourselves to one question and one follow-up, if needed. If you have further questions, please go to the end of the queue, so everyone has an opportunity to ask questions.
An audio replay of this call will be available beginning at 10.30 AM Central Time today, August 20, 2010. The dial-in number is 800-406-7325 and the access code is 4339593. It will also be posted to our Web site and archived for one year.
Before we get started with the results of the quarter, I need to reference the safe harbor statement. Some of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those expressed in or implied by the statements we will be making. Among the factors that may affect the operating results of the company are fluctuations in the cost and availability of raw materials and market conditions for finished products.
Please refer to pages 32 through 38 in the company’s Form 10-Q for the quarter ended April 25, 2010, which was filed with the SEC on June 4, 2010 for more details. It can be accessed on our Web site.
Now I’ll turn the call over to Jeff.
Good morning, everyone. We are pleased to report another excellent quarter building upon the momentum of our strong first half of the year. We were able to grow both earnings and sales by double digits in what is still a challenging consumer environment.
Earnings per share increased to $0.63, up 11% from a year ago, fueled by segment profit gains in four of our five segments. Total dollar sales of $1.7 billion were up 10% from a year ago.
I will now take you through each segment. Our Grocery Products group reported a segment profit decrease of 23% and a dollar sales increase of 12% for the third quarter.
The majority of the sales increase can be attributed to increased sales of products by our MegaMex Foods business. We are pleased with the success of MegaMex thus far as we continue to gain additional distribution in the retail trade channels.
The Grocery Products segment profit level, however, the higher sales of Mexican products and increased sales of our Hormel chili items were unable to offset the pressure from higher raw material costs on our SPAM family of products, our Hormel bacon toppings and our chunk meat brands.
Our Refrigerated Foods segment reported a segment profit increase of 11% aided by continued strong cut out margins and a sales increase of 12%. This year, strong cutout margins have given us the balance to continue growing earnings during a time of rising hog cost. Last year, our value-added products provided the lift we needed to continue to enhance segment profit.
On the retail side, we continue to generate strong sales growth from our Hormel party trays. In addition, our new item such as snack sticks and minis continue to drive sales growth of our Hormel pepperoni line.
We also achieved additional distribution of our Natural Choice deli meats. Our team is doing a nice job with the integration of our Country Crock side dish business, capturing synergies and co-marketing these products with our Hormel refrigerated entrée and with other product, such as our Lloyd’s barbeque line.
Our Foodservice group has also had success growing sales of branded value-added products during the quarter. Sales of our Natural Choice deli meats, Austin Blues barbeque products and Café H ethnic products, and pizza-toppings all grew during the quarter.
Jennie-O Turkey Store increased segment profit a strong 93% on flat total sales, while higher commodity turkey meat prices and lower feed cost helped, the primary driver of our results at Jennie-O was improved efficiencies across the entire supply chain and in our operations. Strong export sales of turkey thigh meat also aided results.