Hormel looks ahead

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Lawsuits and a lagging turkey business don't hinder Hormel's goal setting.

Hormel Foods Corp. remains focused on its goal of 5 percent top-line growth, 10 percent bottom-line growth and margins in the top quartile of the company’s peers in the next three years. But the company faces numerous challenges along the path to success in 2020.

Second-quarter earnings declined 29 percent in the company’s Jennie-O Turkey Store business. Sales in the segment fell 8 percent, while volumes declined 6 percent. President and CEO Jim Snee attributed the performance to weakness in turkey prices, increased competition and increased expenses.

“First, turkey prices, such as breast meat, have maintained their seven-year lows and in some cases, declined further since the first quarter as the industry continues to be in an oversupply situation,” Snee explained in a May conference call with analysts. “History suggests the turkey industry will balance supply and demand and market conditions will improve in the coming months. In turn, we have made additional adjustments to our production levels and would expect volumes slightly under 2014 levels. The impact to our business continues as commodity sales pricing and whole bird pricing is much lower than last year. Lower turkey prices are also pressuring prices in Jennie-O Turkey Store’s three sales divisions: retail, deli and foodservice.”

Increased competition from other turkey suppliers, in addition to competing proteins such as beef, also pressured results in the Jennie-O business, Snee said. Additionally, the segment incurred higher operating expenses and related “bird performance issues” in the company’s conventional and antibiotic-free flocks.

Snee added that the company expects percentage declines in earnings for Jennie-O Turkey Store “to be in the high teens for the second half of the year,” until the industry reduces turkey production levels.

But bright spots for the turkey business include recent 12 weeks scanned data showing the Jennie-O brand continues to outperform the ground turkey category. “Despite the market conditions and operating challenges, the Jennie-O Turkey Store team grew value-added volumes 1 percent this quarter and grew lean ground turkey tray pack volume by double digits,” Snee said.

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