Hormel faces “significant challenges” from AI

by Erica Shaffer
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Turkeys in a Minnesota grow-out barn
Hormel expects a decline in the company's turkey production.

AUSTIN, Minn. – Hormel Foods Corp. said the company is feeling the effects of the ongoing outbreak of avian influenza.

Federal and state animal health officials have confirmed the presence of highly pathogenic H5N2 avian influenza at multiple turkey farms that supply turkey to Hormel's Jennie-O Turkey Store unit. As a result of bird culls and quarantines, the company expects lower supplies of turkey to impact plant operations and cause reduced sales volumes as the year progresses.

“We are experiencing significant challenges in our turkey supply chain due to the recent HPAI outbreaks in Minnesota and Wisconsin,” said Jeffrey M. Ettinger, chairman of the board, president and CEO. “While Jennie-O Turkey Store has delivered strong financial performance so far in the first half, tight meat supplies and operational challenges will pressure earnings in the back half of our fiscal year.”

Ettinger added the company is maintaining its guidance for fiscal 2015 of a non-GAAP adjusted earnings range of $2.50 to $2.60 per share, “with the assumption that farm outbreak occurrences will decline as the weather improves, but expect turkey supply challenges to push our full year earnings toward the lower end of this range.”

“We expect the financial impact of HPAI to be partially offset by favorable hog prices benefitting the Refrigerated Foods segment and portions of the Grocery Products segment,” he concluded.

Minnesota has been hard-hit by the virus. The H5N2 outbreak has led to the deaths of approximately 1.7 million birds across 28 farms in 14 counties, according to data from the Minnesota Board of Animal Health.

Hormel recently reported outbreaks at four turkey farms belonging to contract or independent growers for Jennie-O Turkey Store. In Meeker County, Minn., officials culled 310,000 turkeys. The remaining facilities are in Kandiyohi County, Stearns County and Lac qui Parle County. Minnesota is the leading turkey-producing state in the United States.

Hormel Foods will announce second quarter earnings and share additional information on Jennie-O Turkey Store segment performance on May 20. Shares in the company were down 3.39 percent at 11:56 a.m. EDT.

Meanwhile, H5N2 dealt another blow to Iowa, where agriculture officials will cull 5.3 million laying hens in Osceola County after tests confirmed a second outbreak of H5N2 in the state, according to USDA. This is the largest commercial poultry operation to be affected by the virus.

Iowa leads the nation in egg production — nearly 1 in every 5 eggs consumed in the United States is produced there. The Iowa poultry industry generates $2 billion from commercial egg-laying and has about 50 million hens.

USDA officials said the virus is being spread by migratory wild birds traveling in the Pacific, Central and Mississippi flyways.

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