Hormel Foods(HRL) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Earnings per share for the quarter was $0.45, in line with expectations and comparable to last year [13][30] - Net sales for the quarter were $2.4 billion, up 1%, while organic net sales increased by 4% [29] - Pretax earnings were $290 million, down 5%, primarily due to the sale of CytoSport [29] - Operating margins were 11.8%, compared to 13% last year, driven by lower gross margins in Grocery Products [32] Business Segment Performance Changes - Refrigerated Foods grew volume by 3% and sales by 6%, with strong demand across value-added businesses [14] - Jennie-O Turkey Store delivered a second consecutive quarter of volume, sales, and profit growth, driven by higher volumes and pricing [19][20] - Grocery Products volume declined by 14% and sales by 11%, primarily due to the divestiture of CytoSport [21] - International segment saw volume and sales increase, primarily due to fresh pork exports and strong growth in China, but profit declined by 20% due to higher pork prices [24] Market Data and Key Metrics Changes - The demand for foodservice products in China has dropped significantly due to the coronavirus outbreak, while retail sales of shelf-stable products like SPAM and Skippy have increased [26] - The hog market prices were lower during the quarter, but the balanced mix of hog contracts limited profit potential [16][40] - Overall, turkey inventory in cold storage is down 23% compared to last year, indicating a tightening market [41] Company Strategy and Industry Competition - The acquisition of Sadler's Smokehouse is aimed at strengthening the foodservice segment and expanding into retail and deli channels [9][12] - The company is focused on growing deli and foodservice brands as a top priority, with significant investments in marketing and capital [13][34] - The strategic shift in Hormel Chili's promotional strategy aims to improve long-term profitability by reallocating promotional expenses to advertising [23] Management's Comments on Operating Environment and Future Outlook - Management expects a difficult second quarter for the International segment due to the impact of the coronavirus, but a more favorable second half if the outbreak is contained [26] - The company is maintaining its full-year earnings guidance at $1.69 to $1.83 per share and sales guidance at $9.5 billion to $10.3 billion [27] - Management is closely monitoring market conditions and is prepared to take pricing actions if necessary [52] Other Important Information - Capital expenditures for the year are expected to be approximately $360 million, with significant projects underway [33] - The company did not repurchase stock in the first quarter, focusing instead on the acquisition of Sadler's [34] Q&A Session Summary Question: On the acquisition and CapEx - Management indicated that the acquisition will involve some facility upgrades but does not expect to modify the overall CapEx budget of $360 million [45] Question: On ASF and pricing strategies - Management confirmed that they have taken hedge positions to manage volatility and are monitoring market conditions closely due to uncertainties from ASF and the coronavirus [51][52] Question: On segment guidance and grocery outlook - Management confirmed that Refrigerated Foods and Jennie-O are expected to be up year-over-year, while uncertainty remains in the International segment and Grocery Products [56] Question: On inventory and pricing - Management acknowledged that they have been building inventory in anticipation of higher costs and are making decisions based on market conditions [81] Question: On the impact of the coronavirus in China - Management reported that foodservice sales in China have come to a halt, but retail sales of shelf-stable products are increasing [72] Question: On profitability in Grocery Products - Management noted that SKIPPY's profitability is impacted by deflationary pricing actions and emphasized the need for effective promotional strategies [92]