“It has been a little bit of a puzzle even internally,” said Jeff Ettinger, chairman, president and CEO, during a Feb. 20 earnings call with financial analysts. “We had a couple of really pretty strong quarters with Compleats heading into Q4 and kind of later in the year, it was a little softer, and then Q1 clearly did not meet our expectations.”
While new breakfast varieties have performed relatively well, overall the Compleats franchise has been “a little bit more of a struggle,” he added. Hormelhas planned a marketing push for the platform in the coming months.
“So, we are hopeful that the new marketing effort and some of the promotions we have with the customers will get that back on the right trajectory,” Ettinger said. “We think we have introduced some items that consumers like in terms of the breakfast Compleats item, but time will tell here.”
Conversely, REV snack wraps have exceeded expectations in their first year, leading the Refrigerated Foods segment in a solid quarter.
“We are very pleased with how REV is performing in the marketplace,” Ettinger said. “We are ahead of schedule in terms of our repeat measures on this product line. We continue to have excellent distribution in the marketplace and would expect that our relaunched consumer advertising campaign will also add to the sales within the REV line.”
Similar products set to launch from Kraft Foods and Hillshire Brands may hinder that progress, however.
“We obviously believed in the concept that meat and cheese combinations could be a positive element for consumers when it comes to snacking opportunities, and so it is certainly not [surprising] to us that others have looked at the marketplace the same way and have come up with different offerings,” Ettinger said. “I mean, I think the offerings that I’ve seen are really all quite different from each other, so there certainly is a possibility that they could well be complementary and hit consumers at slightly different occasions or maybe a slightly different age audience.”
Strong demand for Skippy peanut butter products and positive pork operating margins led the company to record first-quarter earnings. For the first quarter ended Jan. 27, net earnings increased 18 percent to $154,458,000, equal to 58 cents per share on the common stock, compared with $131,045,000, or 49 cents per share, in the prior-year period.
Net sales advanced 6 percent to $2,242,672,000 from $2,116,241,000 in the previous year’s first quarter.
Operating profit in the Grocery Products segment advanced 13 percent, and segment sales were 20 percent higher due to the acquisition of Skippy peanut butter brand products and increases in Hormel bacon toppings, chili and the Herdez product line, offsetting weakness for Spam and Compleats.
The Refrigerated Foods segment posted a 59 percent gain in profit, reflecting higher pork operating margins, sustained strong demand for bacon products and growth in Hormel’s food service business. Sales climbed 6 percent on strong retail sales of Black Label bacon items, Hormel REV snack wraps and Lloyds ribs.
The Jennie-O Turkey Store segment profit increased 1 percent, reflecting lower feed costs that were offset by lower live production performance due to extreme weather conditions. Sales for the quarter rose 2 percent, driven by gains in the brand’s fresh lean ground turkey tray packs and chubs and turkey bacon.
“We are pleased with the sustained growth of our value-added turkey products in retail, food service and deli as consumers continue to find better-for-you food solutions in our portfolio of turkey products,” Ettinger said.
The Specialty Foods segment reported an 11 percent drop in operating profit and 16 percent decline in sales, due to the expiration of a food service agreement for Diamond Crystal Brands sugar substitutes.
“The decline from the contract expiration more than offset gains in our sugar and Hormel Health Labs businesses,” Ettinger said. “Our Specialty Foods team is focused on rebuilding its product portfolio and providing sales and operating profit growth as soon as possible.”
Robust sales of Spam and Skippy pushed profit for the International and Other segment up 32 percent and helped increase sales 24 percent.
Looking ahead, Hormel said it anticipates challenges related to unusually cold weather and higher fuel costs, as well as tighter pork raw material supplies.
“The PED virus has impacted our internal farm operations and several of our independent hog suppliers,” Ettinger said. “Our Refrigerated Foods team is closely monitoring the effects on our pork raw material supplies.”