Dive Brief:
- Hormel Foods posted an increase in revenue during the second quarter to a record $2.33 billion — narrowly missing forecasts — from $2.19 billion, a 6.5% increase from the same period a year ago. Income during the most recent quarter ended April 29 was $237.5 million from $210.9 million.
- Refrigerated food sales, the company's largest division that includes Hormel Natural Choice meats, rose 13.6% to $1.167 billion during the period; grocery product sales dropped 1.4% $631.6 million and Jennie-O turkey declined 4.2% to $371.9 million.
- Hormel maintained its earnings guidance and full year sales projections of between $9.7 billion and $10.10 billion despite ongoing challenges in commodity and freight costs.
Dive Insight:
Hormel reported a mixed quarter. The company made a point of noting that it faced a double-digit increase in shipping costs during the quarter, highlighting a challenge faced by countless other CPG companies in recent earnings calls.
In a statement, Jim Snee, the company's CEO, noted that its strong balance sheet and long-term growth strategy should help it withstand the current shipping challenges, as well as ongoing volatility in commodity prices.
"We continue to execute our value-added growth strategy in refrigerated foods and expect our retail and foodservice branded businesses to offset higher freight costs and lower pork commodity profits," he said.
Refrigerated foods, by far its biggest division responsible for half of the company's sales, posted both volume and sales increases. Hormel benefited from its Columbus and Fontanini acquisitions along with strong retails sales of its Hormel Natural Choice meats and pepperoni and bacon sales on the foodservice side. While the purchases of Columbus and Fontanini helped increase overall sales, organic sales were flat during the quarter.
In its grocery segment, Hormel posted strong results in its Wholly Guacamole, SPAM, Dinty Moore and Hormel chili brands. This was more than offset by significant sales declines across the nutritional products CytoSport portfolio and its contract manufacturing business.
A challenge that Hormel can't seem to overcome is in its Jennie-O turkey division, which is dealing with an oversupply of birds that has pressured sales and profitability. The company posted more of the same during the quarter, noting an oversupply of turkeys and excess meat in cold storage. Even though sales dropped slightly more than 4%, the division's profitability plunged 34%.
"While we are starting to see early signs of a recovery in the turkey industry, we expect Jennie-O Turkey Store to continue showing earnings declines for the remainder of this year," Snee said in a statement Thursday.
In February, Snee told Food Dive he has no plans to sell the unit, which he conceded is "masking some of the other great things" going on at Hormel.
The company also has been active in purchasing companies in recent years, including Applegate, Columbus and Justin's. 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. It will likely continue to look for deals to expand its reach.
"We haven't stopped looking, so as the opportunities come forward" we'll consider them, Snee told Food Dive earlier this year. With the company's strong balance sheet and interest in buying companies that fit with Hormel's growth strategy, it would not be a surprise to see the Minnesota firm engage in more M&A throughout 2018.