Hormel Foods (HRL) 3Q16 Earnings Call Notes

Long-term plan is to grow top line by 5% and bottom line by 10% annually

I would like to take this opportunity to reconfirm that our of long-term goals of 5% sales growth and 10% bottom line growth continue to be a appropriate for our company. While we recognize any given year may deviate from these goals, we believe they are achievable over the long run due to our proven ability to build strong brands that resonate with consumers, innovate in categories where we compete, make strategic acquisitions, and achieve balanced growth in various market conditions. Jeff Ettinger – Chairman and CEO

 

Ranking in Selling Power magazine confirms strength of Hormel’s brands

And we are extremely proud to report that just this week Hormel Foods was ranked number one in the 50 best companies to sell-for ranking by Selling Power magazine. This is a huge honor for the company and is further confirmation of the strength of our brands and sales teams. Jim Snee – President and COO

 

HRL is pleased with 2014 CytoSport acquisition

Our CytoSport team posted strong growth for Muscle Milk protein beverages and powders once again this quarter. We continue to be pleased with the new Muscle Milk protein smoothies which have been well received by consumers… The Muscle Milk brand has been performing well in both the protein beverage and powder categories and we expect that to continue. We’re also very excited about the innovation the CytoSport team will be delivering in the fourth quarter. Jim Snee – President and COO

 

SKIPPY and SPAM brands are doing well

Again, from a sales perspective or brand perspective, clearly very pleased with the work the team did on continuing to grow the SPAM franchise. The SKIPPY business, the introduction of SKIPPY pb bites continues to go well. Jim Snee – President and COO

Miscellaneous Earnings Call Notes 2.18.16

Hormel Foods’ (HRL) CEO Jeff Ettinger on Q1 2016 Results

Jeff Ettinger

One of our secrets is being located in a small town in Minnesota

“One last aspect of the secret behind Hormel Foods that I’d like to share with you really relates to our team, where we are — I mentioned to you we’re in a small town in Minnesota; we’re little bit of a throwback in that regard. When someone joins our organization, they tend to join it for a life and indeed our average tenure of our officer team at Hormel Foods is 26 years, that’s not 26 years of industry experience, that’s 26 years of experience at Hormel, which I think does make it somewhat unique in the industry.”


Southern Copper’s (SCCO) Q4 2015 Results

Raul Jacob — CFO

China consumers 46% of the world’s copper

“As you know, China is the world’s major copper consumer with about 46% of world consumption. We believe China’s demand for copper will increase about 3.5% in 2016 driven by the partial recovery of the Chinese housing market and the national grid investment program.”

Current prices not high enough to support supply growth

” current copper prices are not sufficient to promote the necessary supply growth to meet future market needs. Thus, we believe current market circumstances are improving the strong long-term fundamentals of our industry.”


Community Health Systems (CYH) Wayne T. Smith

Volumes lower because of lower flu

“Our volumes, including emergency room visits, were lower than expected in the quarter as compared to a year ago, mainly attributable to the lack of flu and respiratory illness which we historically see during this period. On a same-store basis, if you factor out the flu-related volume decline, we would have had reported slightly positive growth in adjusted admissions.”

Unable to complete proposed spinoff because of debt markets

“The decision to delay the spin, as we have previously stated, is the sudden disruption in the debt markets. This is a market-driven decision. We understand that the debt markets have not been like this since 2008. We expect to complete the spin once market conditions are favorable.”


Potbelly (PBPB) Q4 2015 Results Michael W. Coyne – Chief Financial Officer & Senior Vice President

Wages generate inflationary headwinds

“Similar to last year, we are expecting inflationary headwinds in 2016, primarily as it relates to our labor costs, which we expect to be more impactful this year due to the continuing impact of minimum wage increases that were taken in 2015, as well as expected wage increases this year.”


Freddie Mac’s (FMCC) CEO Don Layton on Q4 2015 Results

The concept of capital in our conservatorship is very unusual

“I’d also wish to remind everyone that the concept of capital, equity primarily, in our conservatorship is very unusual. The many firms and industries which deal with us, look not to our small permitted capital buffer but to the unused portion of the purchase agreement as the source of the capital stream behind our liabilities and thus us appropriately as a very strong credit. That unused PSPA amount has been a very large number for some time specifically $140.5 billion.””


The Priceline Group (PCLN) Daniel J. Finnegan – Chief Financial Officer

Global airfares were down by 15% over the last several months

“In addition, global airfares were down by about 15% over the last several months, according to KAYAK flight search data, which significantly impacts Priceline.com’s gross bookings growth but has no impact on gross profit growth.”


Jack in the Box (JACK) Leonard A. Comma on Q1 2016 Results

Hurt by stressing quality over value and also felt competitive effects from MCD

“the major takeaway is that we chose to focus on this effort and not to promote value deals to the same degree as quarter one last year. Although we stand behind our decision to invest in long-term quality improvements, we paid the price in the quarter as we struggled to roll over last year’s two for $3.50 breakfast croissant promotion. Additionally, we experienced the effects of both the heightened competitive focus on value and the impact of McDonald’s all-day breakfast, primarily between the hours of 10:30 a.m. to noon.”


PG&E (PCG) Anthony F. Earley Jr. on Q4 2015 Results

60% of energy was carbon free

” In 2015, nearly 30% of PG&E’s electric deliveries came from qualifying renewable resources, and even more meaningfully nearly 60% of the energy that we delivered was carbon free.”

CPUC authorizing ROE of 10%

“you’ll see that we continue to assume a CPUC authorized equity ratio of 52%, and a return on equity of 10.4%, which we now have certainty on through 2017.”

Hormel Foods FY 4Q15 Earnings Call Notes

Hormel Foods (HRL) Jeffrey Ettinger on Q4 2015 Results

Revenues down 18% in turkey segment because of Avian flu volumes. Have not experienced any new outbreaks

“Jennie-O Turkey Store fourth quarter segment profit declined 23% on an 18% sales decrease. For the full year, operating profit was up 1% and sales decreased 2%. Results were impacted by high pathogen avian influenza as flocks lost earlier this year created large volume shortfalls in operations and sales. We have now completed the repopulation of all of our turkey barns. We’ve not experienced any new outbreaks thus far into the fall migration of wild birds.

Turkey prices remain at record highs due to industry shortages

“While we have been able to purchase some turkey meat to partially offset flock losses, turkey breast prices remain at a record high due to overall industry shortages.”

We were able to refill barns, but will not be back to normal volumes for two more quarters

“We were able to completely refill our barns, but as we talked about before, the primary turkey for most of our value-added items is our tom turkeys. It’s a 22-week market cycle and so we will not been fully back to normalized volumes throughout the earliest of second quarter of fiscal 2016. ”

We should be able to resume our marketing campaigns by second half of next year

“the team has done the best job they can with making sure that we have the product allocated fairly among our customers in terms of what is available. And then ultimately as Jim indicated, if everything continues to go well and we don’t have any further outbreaks, we should be in a position by second half of next year to renew our successful Make The Switch advertising campaign and restimulate growth for Jennie-O Turkey Store brand”

Hormel Foods FY 3Q15 Earnings Call Notes

Supply shortages in Turkey and deflation in pork

“Sales were lower due to turkey supply shortages in our Jennie-O Turkey Store segment and price deflation in the pork markets, primarily impacting sales within our Refrigerated Foods and International segments.

Pork prices down 40% y/y

“To illustrate the dramatic change in pork markets, the average USDA pork cutoff price in July of 2014 was $133 compared to $83 in July of 2015, almost a 40% decrease. While across the company our team is generally focused on our goal of 5% top line growth, in this particular market scenario, volume growth may be the more appropriate metric by which to gauge results.”

Profit at Jennie O down 45% impacted by avian flu

“Jennie-O Turkey Store segment profit decreased 45% and sales decreased 12%. Results were impacted by high pathogen avian influenza, as flocks lost earlier this year created large volume shortfalls in operations and sales. We have now repopulated approximately two-thirds of the farms’ previously impacted and we expect to complete the repopulation process during the fourth quarter.”

Cytostport (Muscle Milk) operating profit +79%

“Our Specialty Foods segment reported a robust operating profit increase of 79%. Improvements to the cost structure in the CytoSport and Century Foods operations, along with stronger performance in our Specialty Products business benefited results this quarter. Specialty Foods segment sales increased 31%, largely driven by the recently acquired CytoSport business. The CytoSport team has achieved additional distribution of MUSCLE MILK protein nutrition products with big gains coming from one of our more recent product introductions, MUSCLE MILK PRO SERIES.”

Acquired Applegate

“Yeah. I’ll take the first part. We’re still very excited about Applegate. As you point out, I mean, it’s been a month, counting today, and if you really look at the quarterly results, I mean, you’re talking barely even a couple of weeks of results. However, if you just look at the general business trends, they’re still rocking along at double-digit growth rates and we’re very excited about the ability of that franchise to connect with consumers.”

Comments on Avian Influenza

“We are filling up the barns but there clearly is at least a little bit of risk associated with that. We’ve heard a similar theory as to perhaps birds go south faster than they come north and they may not linger as long in the areas, and so that might be a positive factor. But I mean, at this point, it’s just such a wild card. I mean, this was an unprecedented incident already. We’re trying to learn from it, the government’s trying to learn from it. It could hit other parts of the country, it could hit another time of the year, it could go away, it could come back in a smaller manner.

And so, we’re trying to be ready for any contingency. And the best I can tell you right now is we haven’t had a system outbreak since early June and that frankly even if something did hit this fall, it won’t affect 2015 results. Because I mean, you just wouldn’t see the loss of bird flow that quickly. But by the time we’re talking again in November, we should have a much better sense of whether something seems to be occurring on a fall basis this year or not and what potential impact that might have. Even if nothing occurs, however, and as we indicated the last call, I mean with the 22-week lifespan and with egg shortages and so forth, I mean, we’re expecting volume struggles even in the first half of next year until we cycle through this”

Bird loss was 20%

“The bird loss, if you will, ended the system near 20%. And then when you netted it out and there’s some price differential here, I mean, it was a 12% sales drop. So, we were able to buy in some meat, mostly on the dark meat side during the quarter in order to try to mitigate that effect”

Lower volume hits margins when you have fixed costs

“When you’re that short in volume in your plants, that creates all sorts of overhead issues. When you literally don’t have products to sell, I mean, you’re losing that margin and that volume.”

We want to control our own destiny when it comes to pork supply

“our philosophy when it comes to pork is we do want to control our own destiny and we have for years, so even years ago when Oscar Mayer and Sara Lee chose to get out of being vertical in hog processing and rely on others for their meat supply, we made the decision to stick with it. And frankly, as the industry consolidates, to me that decision is even more firm that we need to be able to control our own destiny. That being said, we’ve never tried to be one of the big players when it comes to pork slaughter.”

Hormel Foods 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Jennie-O turkey doing quite well

“Jennie-O Turkey Store continues to build momentum delivering increased segment profit of 45% on a sales increase of 11% during the quarter. For the full year, operating profit was up 23% and sales increased 4%. Results at Jennie-O Turkey Store in the quarter were driven by continued growth in value-added sales, along with high commodity turkey prices. JENNIE-O lean ground turkey and JENNIE-O turkey bacon led sales growth this quarter.

We increased our Jennie-O Turkey Store advertising spend this year with a Make The Switch campaign that started early in fiscal 2014, featuring ground turkey tacos. We plan to continue this advertising campaign in new U.S. markets early in fiscal 2015. We expect Jennie-O Turkey Store segment operating profit margin to be within the 13% to 17% range going forward.”

Expect Jennie-O to have another good year next year, but there are some headwinds

“Clearly Jennie-O Turkey Store, our expectation is to have another good year. They are in a more favorable grain environment, plus they have great value-added momentum, and this should move them towards the top of the operating profit range that we just articulated. That being said, there are some mitigating factors for Jennie-O Turkey Store. The grain benefit is partially offset by hedges. We’ve talked before about our hedge philosophy. The soymeal side of the grain formulas has remained stubbornly high. And we do have certain grain based contracts with foodservice customers within that segment.

Secondly, we expect the turkey commodity meat markets, which have been at an all-time high, to not be quite as favorable in 2015. And then third, we have approved an enhanced advertising budget for Jennie-O Turkey Store, the Make The Switch campaign has driven good results, and so we’re going to be investing further there. In fact, overall advertising spending, as we talked about, was up double digits in 2014 for the whole Company and should be again in 2015.’