Applegate acquisition raises optimism at Hormel

by Keith Nunes
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Applegate Farms products, Hormel
Hormel's acquisition of Applegate has expanded the company’s presence in the natural and specialty foods channels.

BOCA RATON, Fla. — Hormel Foods’ acquisition of Applegate Farms this past year has expanded the company’s presence in the natural and specialty foods channels. With the release of its first-quarter results on Feb. 16, management said the new business unit is meeting expectations and the company is optimistic about future growth opportunities.

What stands out as unique about the acquisition is that Hormel Foods is not integrating the business in a traditional fashion, said Jim Snee, president and chief operating officer, in an interview with Food Business News, a MEAT+POULTRY sister publication, during the Consumer Analyst Group of New York conference that took place in Boca Raton Feb. 16-19. 

Jim Snee, Hormel
Jim Snee, president and COO of Hormel

“It is operating as a standalone entity,” Snee said. “That is a commitment we made to Stephen McDonnell (the founder of Applegate). We believe that the people, the passion, who they are and what they stand for needs to remain in New Jersey. What we are doing is building relationships between different groups within the company.”

Rather, Snee said, the two companies are collaborating.

“For example, we sent a team of Hormel people to Bridgewater (New Jersey) to get a sense of how they operate,” Snee said. “Then we reciprocated and brought an Applegate team to Austin (Minnesota).

“There are some functional areas where we have more resources in Austin than they do. R&D is one of them. We have a pilot plant that they don’t. Another area is supply chain. They have good supply chain people, but they don’t have our expertise.”

He added that the acquisition has opened new doors for the company.

“It has provided us a faster path to creating a significant presence in this high-growth, attractive margin segment,” he said. “It also affords consumers more choice, providing access to foods that fit the demand for more holistic products.”

Hormel party tray, Applegate sausage, Muscle Milk protein, Wholly Guacamole dip
Hormel Gatherings party trays, Applegate natural breakfast sausage, Muscle Milk Pro Series protein beverages and Wholly Guacamole refrigerated dips all saw growth in the quarter.

For the first quarter of fiscal 2016, ended Jan. 24, Hormel Foods recorded net earnings of $235,167,000, equal to 44 cents per share on the common stock, and an increase compared with the previous year when first-quarter earnings totaled $172,430,000, equal to 33 cents per share.

Sales for the quarter were down from $2,395,073,000 in fiscal 2015 to $2,292,672,000, during the first quarter of fiscal 2016. 

Jeffrey Ettinger, Hormel
Jeffrey M. Ettinger, chairman of the board and CEO of Hormel

“While sales were muted this quarter by turkey supply constraints and lower pricing due to declining pork markets, we enjoyed strong performance from many great products across our portfolio, such as Hormel Gatherings party trays, Applegate natural breakfast sausage, Hormel Fire Braised meats, Muscle Milk Pro Series protein beverages and Wholly Guacamole refrigerated dips,” said Jeffrey M. Ettinger, chairman of the board and CEO.

The business segment that stood out for the company was Refrigerated Foods unit, said Jody Feragen, CFO.

“Refrigerated Foods had an outstanding quarter, segment profit up 65 percent and really it was great performance across all our value-added businesses as well as strong pork operating margins,” she said. “This segment also benefited from the inclusion of the Applegate Farms operations, that was a business we acquired in July of 2015 and it continues to perform as we expected.” 

Jody Feragen, Hormel
Jody Feragen, CFO. of Horme

The strong quarter prompted management to raise its fiscal 2016 earnings guidance from a range of $1.43 to $1.48 per share to $1.50 to $1.56 per share.

“We expect favorable input costs to continue for Refrigerated Foods, Grocery Products and Specialty Foods, while we look for pork operating margins to moderate as the year progresses,” Snee said.

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