- Hormel Foods said third-quarter sales increased 7% from the prior year to a record $2.4 billion. Organic sales, which removes acquisitions and divestitures, were flat, with its Jennie-O Turkey division the only segment to post growth. Profit at the Minnesota company rose 15% to $210.2 million during the period.
- The maker of Spam, Justin's, Applegate and Dinty Moore cut its sales out for its fiscal year to a range of $9.4 billion to $9.6 billion from $9.7 billion to $10.1 billion.
- “We reported record sales and earnings for the quarter and remain on track to deliver our full year earnings guidance range amid volatility due to tariffs and broader industry dynamics,” Jim Snee, CEO of Hormel Foods, said in a statement. “We continue to execute on our strategic initiatives while investing in growth for the future.”
Hormel's quarter was reflective of many of the challenges facing food companies, particularly those with a major presence in the meat segment. The company was not only impacted by retaliatory tariffs that have made international sales more expensive, limiting demand, but an excess supply of pork, chicken and beef that squeezed margins as companies work to shed excess supply. Hormel's operating margin during the quarter was 11.1% compared to 12.7% last year.
Sales dropped in three of its four divisions — refrigerated foods, grocery products and international — with Jennie-O Turkey the only one to post an increase. The notoriously volatile Jennie-O Turkey segment posted an 8% increase in organic sales to $398.1 million as it benefited from demand for its premium deli products and lean ground turkey. But profit dipped 23% as a result of lower profits from whole bird sales, double-digit increases in per-unit freight costs and increased advertising to encourage consumers to switch to healthier ground turkey from ground beef.
Similar challenges plagued its refrigerated foods division, which includes Hormel, Natural Choice and Applegate products, and is responsible for roughly half of Hormel's overall sales. The segment posted a 2.6% drop in organic sales to $1.2 billion. At its grocery products division that oversees Wholly Guacamole, Skippy and Spam, sales fell 0.2% to $617.7 million.
Many of the hurdles facing Hormel seem to be largely the result of outside pressures, but it doesn't change the fact that they are having a noticeable impact on its bottom line, and forcing the company to respond. Hormel has been spending more on advertising to promote several of its brands. Advertising investments during the quarter were $40 million compared to $24 million last year, Hormel said. For the full year, advertising costs are expected to increase by approximately 20% from 2017.
One area that has been surprisingly slow for Hormel during 2018 has been M&A. After a busy 2017 that saw Hormel purchase Columbus Manufacturing, a maker of premium craft meats popular in grocery store delis, Fontanini Italian Meats and Sausages, a supplier of products to the foodservice sector, and make its first entry into the South American market by purchasing a Brazilian sausage and salami maker, Hormel has been quiet this year on that front. The company still has $269 million in cash and said it "remains in a strong financial position to fund other capital needs," so it has plenty of ammo to make another purchase if it decided to.
"We haven't stopped looking, so as the opportunities come forward" we'll consider them, Snee told Food Dive on the sidelines of the annual Consumer Analyst Group of New York conference in Florida in February.
The company's acquisition targets include businesses that are global, multi-cultural, on the go and focused on health — a common theme among Big Food companies struggling for growth, looking to diversify and scrambling to get their portfolios in line with rapidly changing consumer trends. The company has identified the deli as a one of its growth targets, noting the space is growing four-times faster than other food parts of the store, and meets some of the trendy areas, such as premium brands, grab-and-go items, prepared foods and grocery store restaurants.