Net income for the quarter was $182,508,000, equal to $0.35 per share on the common stock, down from $195,654,000, or $0.37 per share, in the same period a year ago.
Sales for the quarter also fell to $2,207,375,000 compared to the previous year when sales were $2,302,376,000.
“While we generate bellies internally through the hog harvest process, we also procure (a) large quantity of bellies externally,” said James P. Snee, president and CEO of Hormel Foods, during an Aug. 24 call with financial analysts. “The speed and magnitude of these increases pressured both our retail and food service bacon business. We have implemented price increases, with the majority being realized late in the fourth quarter.
“We also saw 50 percent beef trim prices hit record levels this quarter. As a reminder, we procure all our beef meats externally for products in Grocery Products and International such as Hormel Chili, Dinty Moore Beef Stew; and products in Refrigerated Foods, such as Hormel Pepperoni and dry sausage items.”
“Similar to the first half (of the fiscal year), three main issues affected Jennie-O Turkey Stores' profitability this quarter: low turkey markets, elevated competition and increased expenses,” Snee said.
He added that competition for Jennie-O Turkey is not only coming from other turkey processors. While 50 percent beef trim prices have risen, the increase has not translated to higher ground beef prices at retail.
“We experienced a sharp decline in Muscle Milk ready-to-drink protein beverages as investments in the brand did not drive the expected growth,” Snee said. “We continue to see aggressive competitive activity, especially in the convenience store channel. We are making numerous corrective actions, including increased promotional support.”
Taking the issues pressuring the company into consideration, Snee said Hormel is lowering its full-year earnings per share guidance to $1.54 to $1.58 per share from the previous guidance of $1.65 to $1.71 per share.
“We have faced difficult market conditions this year,” he said. “Commodity markets have been challenging to forecast based on both the volatility of the markets and the velocity of the change. The lag between the input cost increases and when price changes are realized in the marketplace has pressured margins in the short term. We know it is our responsibility to address these shifts and find ways to move the business forward. We have a plan and are executing that plan to realize our long-term goals.”