Hormel makes plans to broaden food outlook
Nov. 22, 2017
by Monica Watrous
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Hormel Foods' net sales declined 4 percent in fiscal 2017.
AUSTIN, Minn. — The past year has not proceeded as planned for Hormel Foods Corp., which was challenged by difficult market conditions and record input prices, said James P. Snee, chairman, president and CEO.
|James Snee, chairman, president and CEO of Hormel Foods
“For some markets, such as bellies and beef trim, prices increased rapidly, but also decreased rapidly,” Snee noted during a Nov. 21 earnings call. “Other markets such as turkey breast dropped further and faster than anticipated and remained at depressed levels.”
Net earnings attributable to Hormel Foods Corp. in the year ended Oct. 29 were $846,735,000, equal to $1.60 per share on the common stock, down from $890,052,000, or $1.68 per share, in fiscal year 2016. Net sales declined 4 percent to $9,167,519,000 from $9,523,224,000.
In August, Hormel Foods acquired Fontanini Italian Meats and Sausages.
In the fourth quarter, Hormel earned $218,154,000, equal to $0.41 per share, down from $243,940,000, or $0.46. Net sales of $2,492,608,000 were down 5 percent from $2,627,941,000.
“Overall, this year has been challenging and did not meet the expectations we set for ourselves at the beginning of the year,” Snee said. “However, I cannot emphasize enough the importance of the intentional balance that we create in all areas of our business. Even with the disappointing year we had in Specialty Foods and Jennie-O Turkey Store, we still delivered record operating margin, record operating cash flow, returned a record amount of cash back to shareholders and increased our cash balance.”
Hormel Foods announced plans to merge its struggling Specialty Foods segment into its Grocery Products segment, which will continue to be led by Luis Marconi, group vice president of Grocery Products.
“Both organizations sell shelf-stable products, have a focus on the food/drug/mass and club channels and are charged with managing CPG brands,” Snee said. “Combined, this segment will be a model for how to manage iconic brands such as Spam and Skippy while nurturing the growth of fast-growing franchises like Wholly Guacamole, Justin's and CytoSport. Over time, consolidating these two segments will deliver revenue and cost synergies in all aspects of the business while continuing to deliver industry-leading growth.”
In the year ahead, executives anticipate continued headwinds from volatile commodity markets, a slower-than-expected recovery in the turkey industry and uncertainty in hog and pork markets.
“The tailwinds in our business are clear,” Snee said. “In addition to the solid fundamentals that will provide strong organic growth, we have three new strategic acquisitions, numerous strategic investments and value-added capacity and an innovation pipeline, all with exciting new products.”
The new segment will include such brands as Skippy, Spam, Wholly Guacamole, Justin's and CytoSport.
Snee outlined six steps on Hormel’s path to growth in 2018. First, he said, “We'll continue to evolve to a broader food company.” The company’s recent $850 million acquisition of Columbus Manufacturing Inc., for example, expands Hormel’s presence in the total deli, “an advantaged growth space,” Snee said.
Second, the company plans to expand and accelerate its food service business, with the addition of Fontanini Italian Meats and Sausages, which Hormel acquired in August for $425 million.
Hormel’s third priority is expanding its global footprint. Recent moves in this area have included the August acquisition of Ceratti, a Brazilian meat brand, and the opening of a new plant in China.
“Both strategic investments will allow International to deliver above-average growth this year,” Snee said.
The fourth focus for Hormel in the coming year is reducing volatility and increasing balance.
“We continued to increase the sales of value-added products as a percentage of our total sales, and we've complemented that growth with the acquisitions of purely value-added businesses such as Fontanini, Ceratti and Columbus,” Snee said.
Other initiatives will include divesting nonstrategic assets and reorganizing the supply chain.
“The headline for 2018 will read: strong value-added growth and strategic acquisitions more than offset commodity headwinds,” Snee said.