Dive Brief:
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Hormel Foods' first-quarter sales came in at $2.3 billion, up 2%, while organic net sales rose 1%. Volume was down 4% to 1.2 billion pounds, and organic volume slipped 2%. The Minnesota-based company continued to see lower volume and net sales in its Jennie-O Turkey segment due to oversupply, although it said declines in sales of whole birds were partially offset by higher sales in lean ground turkey and oven-ready products.
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The company increased its earnings guidance to $1.81 to $1.95 per share but didn't change its net sales outlook of $9.7 billion to $10.1 billion for fiscal 2018. Hormel received a one-time benefit of $63 million from the recent corporate tax cut and said it would be investing in its key domestic brands such as Jennie-O, Hormel pepperoni, Skippy, Muscle Milk, and Evolve, its new plant-based protein brand, and would also increase its starting hourly wage to $13 by the end of fiscal year 2018 and to $14 by end of fiscal 2020.
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Hormel projects "a slower-than-expected recovery at Jennie-O Turkey Store" due to a difficult operating environment in the turkey industry, Jim Snee, Hormel chairman, president and CEO, said in a release.
Dive Insight:
The strongest performance during the most recent quarter was in Hormel's Specialty Foods area — now merged with its Grocery Products segment — which reported an 8% profit rise. This was due from sales increases in Wholly Guacamole dips, Muscle Milk protein products, Hormel Compleats microwave meals, Herdez salsas and SPAM, the company reported.
Hormel's Skippy and Justin's nut butter brands also showed improvement during the most recent quarter. This is a turnaround for the segment, which posted a 21% profit drop during the fourth quarter of 2017.
It was a different story for Hormel's Jennie-O Turkey Store, which posted a 27% profit plunge during the fourth quarter due to oversupply and excess meat in cold storage. This continues to be a problem area which has dragged down volumes and profits for the company despite flat feed costs.
Net sales in Hormel's Refrigerated Foods segment were up 5%, primarily due to its $850-million acquisition of Columbus Craft Meats this past October and its $425-million purchase of Fontanini Italian Meats and Sausages last summer. Both have generated sales and growth as projected when the deals were announced. Profit in the segment slipped, however, because of acquisition costs related to the Columbus purchase, plus the sale of its Farmer John business to Smithfield Foods.
Hormel's International segment posted a 19% increase in net sales from the Ceratti brand of mortadella, sausage and salami products, which Hormel acquired with its purchase last year of Brazil's Cidade do Sol for about $104 million. The company also reported improved profitability in China from lower costs for raw materials.
Although the company's recent acquisitions helped pushed up profits during the current quarter, ongoing problems with its Jennie-O brand, despite leadership changes announced last fall, don't seem to be improving the situation. Hormel may have to decide whether to hang onto that segment or divest it if things don't turn around.