Hormel sees earnings inch up as Jennie-O issues continue to gobble into profits
- Hormel Foods Corp. posted a 1% increase in earnings over 2016 to $278 million before income tax, according to its third-quarter earnings report. Diluted earnings per share were 34 cents, down 6% from last year.
- Sales were down 4% to $2.2 billion, the company reported, citing disappointing results from their ready-to-drink protein and turkey product sectors but noting encouraging sales growth from grocery products and refrigerated foods.
- Due to higher input costs for key raw materials including bellies, pork trim and beef trim, President and CEO Jim Snee said in the report that planned price increases would not be fully effective for several months. Hormel lowered its full-year guidance to $1.54 to $1.58 per share, from the low end of $1.65 to $1.71 per share.
Along with its new earnings report, the company announced it had acquired Cidade do Sol, its fist entry into the South American market, for about $104 million. The company produces meats such as mortadella, sausage and salami for Brazilian retail and foodservice markets under the Ceratti brand.
Hormel also recently acquired Fontanini Italian Meats and Sausages for $425 million, which Snee said would complement Hormel's foodservice sector and add production capacity for its pizza toppings business.
Hormel has been on the lookout for M&A opportunities both in the U.S. and worldwide, reflected in the sale of its Diamond Crystal Brands and Farmer John businesses and its recent acquisition of Justin's LLC, Applegate Farms and Muscle Milk. These particular buys were seen as favorably positioning Hormel in the nut butter snacks and natural and organic meats categories and generally realigning its portolio.
Snee predicted a year ago that dairy-based Muscle Milk line would be one of the company's key franchises in upcoming quarters. But compared to a year ago, Hormel's operating profit in specialty foods was down 14% in the third quarter and volume was down 8% — perhaps reflecting steadily increasing consumer interest in plant-based protein drinks.
Another soft area was in Hormel's Jennie-O Turkey Store product, where the company reported an operating profit decline of 20%, a 7% decrease in volume, and a 9% drop in sales from the same time last year. An ongoing oversupply in the turkey industry has continued to pressure sales and profitability of the unit, and is likely to hike the company's operating costs going forward.
Snee also noted the company is committing more than $130 million to expand production capacity at its Dold Foods facility in Wichita, Kansas, calling the demand for Hormel's precooked bacon "incredible."
- PRNewswire Hormel Foods Announces Third Quarter Results And Continued Progress Towards Key Strategic Initiatives
- PRNewswire Hormel Foods Adds to Its Growing International Portfolio with the Acquisition of the Ceratti® brand
- Forbes Protein Power: Muscle Milk And Skippy Help Hormel Beat Earnings Expectations