Dive Brief:
- Hormel reported higher sales for pepperoni and deli meats as well as a pronounced drop in raw pork costs last quarter, which improved profits in the company's refrigerated meats division, though sales for the category were down overall.
- The company's grocery segment saw increased sales thanks to growth in Skippy peanut butter and Wholly Guacamole.
- These positive numbers offset the damage done to Hormel's turkey sector due to the bird flu outbreak. The bird flu significantly impacted its Jennie-O Turkey Store brand, which reported a sharp decline in operating profit.
Dive Insight:
Skippy P.B. Bites, launched earlier this year, is one of Hormel's forays into the fast-growing snack industry. It's one example of how re-engineering products to be simple and convenient can help tap the snack market, which is predicted to grow to $47.5 billion in 2015, up from $34.2 billion a decade ago.
In the future, part of the growth in refrigerated meats may come from Hormel's recently acquired natural and organic meats producer, Applegate Farms, once the acquisition is completed.
The bird flu, however, presents a different picture for Hormel. More than 50 farms that supplied turkeys to Jennie-O during the spring were impacted by the bird flu, which caused Hormel to scale back turkey production and cut jobs in that segment. Because the virus has slowed, about two-thirds of those farms have returned to production and the rest are predicted to be repopulated by the end of the current quarter, but Hormel still believes Jennie-O's sales will be down 15% for that period. Hormel will have to keep an eye on these turkey suppliers, as some experts believe the bird flu could return in the fall due to cooler temperatures and wild birds' migration south for the winter.
Despite the impact of the bird flu, Hormel saw enough successes in other segments that it raised its profit outlook for the year to $2.57 to $2.63 a share from $2.50 and $2.60 a share. This is a change from the previous quarter's earnings report, in which Hormel expressed concerns that its full-year earnings would come in at the lower end of its previous guidance due to the bird flu.