Dive Brief:
-
Profit for Hormel Foods' Jennie-O-Turkey Store dropped 24% for the fourth quarter, its net sales fell 10% and volume was down 7%, the company reported Tuesday. The Minnesota-based company blamed the sales and earnings slide on a continuing oversupply, leading to lower turkey prices. Total company sales for the quarter were about $2.5 billion, down 5%, with full-year sales at $9.2 billion, a drop of 4%.
-
The company also announced it was merging its Specialty Foods segment — health and nutrition products, including Muscle Milk — with its Grocery Products segment — which includes well-known brands such as Spam and Skippy peanut butter. In a written statement about the streamlined structure, Hormel President, CEO and Chairman Jim Snee said the revamped segment should deliver revenue and cost synergies and "will be a model for strategic management of iconic brands" and "nurturing the continued growth" of smaller ones.
-
In the earnings report, Snee indicated that the company's fiscal 2018 outlook would brighten with three strategic acquisitions and innovations such as fully cooked bacon and Skippy PB Bites. "We expect Refrigerated Foods, Grocery Products and International to drive growth as Jennie-O Turkey Store continues to navigate difficult industry conditions,” he said in a statement.
Dive Insight:
Hormel continues to be challenged by lower turkey and specialty food sales. However, strategic acquisitions and positive export figures improved the company's balance sheet. The company set its net sales guidance for fiscal 2018 at $9.4 billion to $9.8 billion and its earnings per share at $1.60 to $1.70.
Dropping sales in the Specialty Foods category may have been the catalyst for the segment merge. According to the report, profits were down 21% in the category during the quarter. These declines were mainly related to lower Muscle Milk sales at convenience stores. While Muscle Milk has been touted as one of the company's key franchises going forward, it has recently been a drag on earnings, with profits down 14% on the company's last earnings report in August.
The company's Grocery Product segment, on the other hand, reported profit growth of 7% — which may be why the manufacturer is moving its nutrition-based line there. Wholly Guacamole dips, Spam and Herdez salsa all saw strong sales growth in the quarter, the company reported. Net sales and volumes fell a little bit, mostly because of price increases of Skippy peanut butter and Hormel chili.
Hormel announced some personnel changes on Tuesday that may help address some of these sales and profit issues. Glenn Leitch, president of Jennie-O Turkey Store, will now head the company's global supply chain, and Steve Lykken, most recently president of the Applegate brand, will become the new president of Jennie-O Turkey Store.
The company has been hoping to grow through diversification as well. Under Snee's leadership, the company recently acquired Cidade do Sol, its first 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. According to the earnings report, these products helped give international sales an 18% profit boost.
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.
And just last month, the company announced its largest acquisition to date with the pending purchase of Columbus Craft Meats, a San Francisco-based premium deli meat and salami company, for $850 million. That acquisition, once completed in December, is expected to generate additional sales and growth for Hormel next year.
To stem this uneven progress, perhaps Hormel will realign its portfolio again by shedding underperforming brands such as Muscle Milk to focus more intently on its core businesses and the newly added ones. And while Jennie-O's performance has suffered from high turkey numbers and depressed prices, the just-announced leadership switch in that segment shows renewed interest in reinvigorating the brand while tightening supply chain practices.