Dive Brief:
- Hormel Foods reported sales in the first quarter of 2017 fell 1% to $2.3 billion, but rose 3% when adjusting for the recent divestitures and the acquisition of Justin's, the company said in a press release.
- Hormel posted earnings of $235 million, flat compared to 2016, with earnings during the quarter of 44 cents compared with 43 cents a year ago.
- The maker of Spam, Skippy peanut butter and Muscle Milk lowered its fiscal 2017 guidance for the year to $1.65 to $1.71 per share from $1.68 to $1.74 per share due to pricing pressures impacting its popular Jennie-O Turkey brand. “Improvements in our other segments are expected to offset some of the earnings headwinds from Jennie-O,” said Jim Snee, CEO of Hormel.
Dive Insight:
Hormel has been overhauling its brand lineup during the last two years, divesting its Diamond Crystal Brands and Farmer John business while purchasing Applegate Farms and Justin’s roster of peanut butter and chocolate snacks. The changes, which come as the food industry grapples with stagnant growth and a shift in consumer demands, position the company's future on selling more on-the-go items such as Skippy PB Bites and Justin’s Snack Packs, better-for-you foods, and natural and organic products.
These changes have not been enough to protect the company from price fluctuations in the commodity markets, a common challenge affecting meat producers. During the first quarter, lower turkey commodity prices and increased operating expenses cut Hormel’s profit in its Jennie-O Turkey Store by 25%, even as sales increased 13% and volume surged 22%. Pricing pressure from competing proteins in the foodservice, deli and retail channels also affected its results.
Four of the company’s five divisions — refrigerated foods, grocery products, international and specialty foods — posted flat to higher profitability that helped offset challenges in its turkey business. Sales in its grocery segment rose 7%, helped by strong results in Hormel's Wholly Guacamole and Skippy peanut butter, with profitability up 1%. Earnings in refrigerated foods, led by Hormel bacon, party trays and Natural Choice meats, rose 4%. Sales in the segment declined 3%, due largely to the divestiture of the Farmer John business in January.