Hormel Foods Corporation — Q1 Fiscal 2022 10-Q
Reporting period: 13 weeks ended January 30, 2022; comparable quarter ended January 24, 2021. Amounts are in U.S. dollars unless noted. Fiscal 2022 ends in October.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $3,044.4 million | $2,461.1 million | +23.7% |
| Organic net sales (excluding acquisitions/divestitures) | $2,772.5 million | $2,461.1 million | +12.7% |
| Gross profit | $538.7 million | $450.2 million | +19.7% |
| Gross margin | 17.7% | 18.3% | Down 0.6 percentage points |
| Operating income | $319.7 million | $268.0 million | +19.3% |
| Net earnings attributable to Hormel | $239.6 million | $222.3 million | +7.8% |
| Diluted EPS | $0.44 | $0.41 | +7.3% |
| Cash from operations | $383.8 million | $205.7 million | +86.6% |
Revenue growth reflected the Planters snack nuts acquisition, pricing actions, and foodservice strength. Reported volume increased 2.1%, while organic volume declined 4.1%. Rising raw-material, packaging, freight, labor, and other costs pressured gross margin. SG&A rose 15.1% to $226.0 million, but declined as a share of sales to 7.4% from 8.0%. Equity earnings from affiliates fell 51.5% to $6.9 million.
Segments and material changes
- Grocery Products: Sales increased 48.1% to $855.6 million, including Planters; segment profit rose 7.9% to $99.5 million. Lower MegaMex earnings, inflation, and labor-related production constraints offset part of the growth.
- Refrigerated Foods: Sales rose 19.1% to $1,627.5 million and segment profit increased 15.0% to $162.4 million. Foodservice growth and pricing overcame higher costs; volume declined 3.8%.
- Jennie-O Turkey Store: Sales increased 15.3% to $384.5 million and segment profit rose 62.4% to $43.7 million, supported by foodservice, pricing, and favorable market conditions. Higher feed and logistics costs remained a burden.
- International & Other: Sales declined 3.5% to $176.8 million and segment profit fell 19.0% to $26.1 million, amid softer China demand, export-logistics challenges, and lower affiliate earnings.
Planters, acquired in June 2021 for $3.4 billion, contributed $271.8 million of Q1 sales. Its post-acquisition net income was not separately discernible. Consolidated results also included lower investment income and higher interest expense; the company reported $5.4 million of rabbi-trust securities losses versus a $11.8 million gain a year earlier.
Cash, debt, and liquidity
- Cash and cash equivalents were $824.4 million at January 30, 2022, up $210.9 million from fiscal year-end; prior-year quarter-end cash was $1.752 billion, reflecting cash used to fund the Planters acquisition.
- Operating cash flow was $383.8 million; investing cash outflow was $49.7 million, including $49.7 million of property and equipment purchases; financing cash outflow was $124.0 million, including $132.9 million of dividends paid.
- Total debt was $3.318 billion, including $3.309 billion of long-term debt less current maturities. The company had no borrowings under its $750 million revolving facility and was in compliance with debt covenants.
- Quarterly declared dividend was $0.26 per share. The fiscal 2022 annual dividend rate was increased 6% to $1.04 per share.
Outlook, risks, and contingencies
Management expected second-quarter gross margin to improve year over year and sequentially, citing pricing, promotional effectiveness, and a more profitable mix; further input-cost inflation was identified as the largest risk. For Q2, management expected growth in Grocery Products, higher sales and profit in Refrigerated Foods, improved Jennie-O results, and growth in International & Other. These are segment-level expectations; the filing does not provide clear full-year revenue or earnings guidance. Management estimated fiscal 2022 capital expenditures of $310 million and an effective tax rate of 20.5%–22.5%.
Key risks include persistent inflation, labor shortages and production constraints, supply-chain and export-logistics disruption, weaker China demand, and livestock or poultry disease. Highly Pathogenic Avian Influenza had been detected in the U.S. in 2022. A labor contract covering about 700 employees at the Rochelle, Illinois facility was due to expire March 18, 2022, with negotiations ongoing. The company disclosed three sets of antitrust lawsuits involving the pork and turkey industries, had not recorded reserves for them, and did not expect currently known legal matters to materially affect financial condition, results, or liquidity. No material changes to previously disclosed risk factors were reported apart from the specified labor and disease updates.
Investor verification priorities
- Track organic sales and volume separately from Planters-related growth, and assess the acquired business’s earnings contribution as integration proceeds.
- Monitor whether pricing and mix offset continued input, freight, and labor inflation and deliver the expected margin recovery.
- Verify resolution of labor constraints and the Rochelle contract negotiations, and watch for effects from HPAI or other livestock disease.
- Follow MegaMex and other affiliate performance, China demand, and export-logistics conditions.
- Review debt, cash generation, capital spending, and the status of the disclosed antitrust and tax matters.