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Hormel transformation of Jennie-O on track

Admin by Admin
March 5, 2022
Reading Time:4min read
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AUSTIN, MINN. — Strong results from Hormel Foods Corp.’s value-added businesses contributed to record earnings for the company during the first quarter of fiscal 2022 and provided a sign that Hormel is headed in the right direction with its efforts to transform its Refrigerated Foods and Jennie-O Turkey Store businesses.

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“From a bottom-line perspective, the intentional actions we have taken to offset inflationary pressures are working,” said James P. Snee, chairman of the board, president and chief executive officer. “These actions include pricing, improving promotional effectiveness and shifting to a more profitable mix.

“We saw excellent results from the value-added businesses in Refrigerated Foods and the Jennie-O Turkey Store business, which benefited from favorable market conditions and our initial transformative efforts. The Planters business was also a catalyst for earnings growth as we continued to leverage the expertise and scale it has provided our high-growth snacking platform.”

Net income for the first quarter ended Jan. 30, 2022, was $239.57 million, equal to 44¢ per share on the common stock, up from $222.28 million, or 41¢ per share, in the first quarter of 2021.

During the first quarter Hormel Foods reported record net sales of $3 billion, up 24% from $2.46 billion in the same year-ago quarter.

“Organic sales increased 13% for the quarter,” said Jacinth Smiley, chief financial officer. “Gross profit increased $89 million compared to last year, a 20% increase. This improvement was driven by strength in Refrigerated Foods, Jennie-O Turkey Store and the addition of the Planters snack nuts business.”

Turkey transformed

Hormel is moving forward with shifting its Jennie-O Turkey Store portfolio to branded, value-added products as the company already is seeing benefits from the strategy.

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“For an example, as an industry leader in turkey, we are investing behind the Jennie-O brand to drive greater growth in our most profitable, high-growth product lines in retail and foodservice,” Mr. Snee said during an earnings call with analysts. “In conjunction with driving improvement in our value-added products, we ae also taking aggressive actions to optimize our portfolio. Combined with increased pricing, our brand investments and SKU rationalization are leading to a healthier business.”

Net sales for the first quarter were up 15% to $384.47 million. Sales increased due to improved foodservice performance, increased whole bird shipments and pricing actions across the portfolio, the company said.

Volume declined 3% largely due to lower commodity volumes as a result of labor shortages. Higher commodity prices and strong foodservice sales drove the significant improvement in segment profit, which was $43.74 million, up 62% from last year.

The company remains on track to close its Benson Ave. processing plant in Willmar, Minn., and transitioning employees to the company’s newer and larger facility, which also is in Willmar. The company expects this process to finish by the second quarter.

The Jennie-O supply chain largely has been run separately from the rest of the company’s supply chain at Hormel Foods as it is vertically integrated. Mr. Snee said the company will leverage its One Supply Chain capabilities to integrate all facilities into the broader Hormel network.

“As we integrate these plants into the Hormel Foods network and rationalize commodity SKUs, we will free up plant space for additional production capacity of many product lines that will service any brand in the Hormel Foods portfolio,” Mr. Snee said. “This is a monumental step and one that will make our entire company more efficient.”

Mr. Snee added that the company expects the Jennie-O Turkey Store business to achieve higher or stable growth and improved profitability over time.

To support the changes and maintain momentum, Hormel made investments in the Jennie-O, Planters and other brands.

“We increased advertising investments in all four segments to support the Planters, Spam, Jennie-O and Skippy brands as well as the Hormel pepperoni and Hormel chili product line,” Ms. Smiley said. “For the quarter, advertising expense increased by 38%, or approximately 2¢ per share.”

Ms. Smiley noted that Jennie-O also absorbed higher logistics and supply chain costs. Feed costs jumped more than 35% compared with 2021. The company hedged most of its grain costs to protect against volatility in market prices during the fiscal year, she explained.

Planters performance

Mr. Snee noted that the Planters business continues to perform at the high end of the company’s expectations, and innovations in the brand are in the pipeline.

“We are on track to launch many new innovation items, including Planters Sweet & Spicy Dry Roasted peanuts, and refresh the branding and packaging,” he said. “Recently, we also made investments in advertising with the All or One campaign.”

The company also completed the supply chain integration of the Planters and Corn Nuts businesses during the first quarter, which should result in continued synergies and improved customer service levels.

On a segment basis, net sales in the Refrigerated Foods business were $1.63 billion, an increase of 19%. Segment profit was up 15% to $162.39 million. Sales volume declined 4%.

“Consistent with the company’s long-term strategy to better align resources to value-added growth, the overall decline in volume was due to lower commodity sales as a result of the company’s new pork supply agreement,” the company said.

Retail and deli sales growth was led by products such as Applegate natural and organic meats and Hormel Gatherings party trays, the company added. Additional products such as Columbus grab-and-go charcuterie also benefited from new production capacity in Nebraska.

Net sales increased 48% to $855.59 million in the Grocery Products business. Segment profit climbed 8% to $99.49 million.

Wholly, Spam, Dinty Moore and Mary Kitchen led sales growth in the business. Segment profit increased due to the contribution from the Planters snack nuts business, which more than offset lower results from MegaMex and higher operational and logistics costs, Hormel said.

The International business reported net sales of $176.77 million, a decline of 3%. Segment profit declined 19% to $26.084 million.

Hormel attributed the result to demand softness in China caused by COVID-related restrictions, current export logistics challenges and lower fresh pork export volume resulting from the company’s new pork supply agreement. Segment profit declined on lower sales across the portfolio and a decline in equity in earnings.

“We are reaffirming our sales and earnings guidance,” Mr. Snee said. “We expect the demand environment to remain favorable, pricing actions to combat inflationary pressures and continued growth from products such as Columbus charcuterie, Applegate natural and organic meats, Planters snack nuts, and foodservice prepared proteins and pizza toppings. Additionally, we anticipate the operating environment to remain volatile, but our supply chain will continue to show improvement as labor pressures ease and new capacity comes online to support key growth platforms, such as dry sausage, pizza toppings and bacon.”



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