AUSTIN, Minn. – Despite volatility in the pork industry, including the impact of tariffs and a surplus of protein in the market that pressured the company’s pricing and profitability, Hormel Foods Corp. reported Q3 revenues of $2.36 billion, a 6.9 percent increase over the same period last year, although organic sales remained flat.
The company lowered its guidance on fiscal 2018 net sales from a previous outlook range of $9.70 billion-$10.10 billion to $9.4 billion-$9.6 billion. Executives highlighted its rise in profit to $210.2 million and record-high diluted earnings per share (EPS) of $0.39, an increase of 15 percent over the previous year’s EPS of $0.34. The company also reported a 5 percent increase in volume compared to the previous year, to 1.2 billion lbs. while organic volume increased 1 percent.
“We reported record sales and earnings for the quarter and remain on track to deliver our full-year earnings guidance range amid volatility due to tariffs and broader industry dynamics,” said Jim Snee, chairman of the board, president and CEO.
Hormel’s Grocery Products and International business segments were bright spots during the quarter as was the performance of the value-added product lines in its Refrigerated Foods segment, despite organic sales that dropped 2.6 percent.
The company attributed the decline in the Refrigerated Foods segment’s organic volume and sales to lower hog harvest volume. Other headwinds included higher freight costs and increased spending on advertising.
The International business segment saw volume increase 9 percent and net sales up 11 percent while organic product volume and sales dipped 7 percent and 3 percent respectively. However, the segment’s profit increased 9 percent. “Overall earnings increased as improved profitability in China more than offset lower fresh pork export profits and increased advertising investments,” the company reported. During the quarter, lower fresh pork export volume, sales, and profitability declined sharply, which Hormel attributed to the impact of increased tariffs in key markets.
Sales in its Jennie-O Turkey Store business also grew to $398.1 million during the quarter, a 7.9 percent increase. Jennie-O, in fact was the only segment to see increases in organic sales. While volume and net sales were up 14 percent and 8 percent respectively, the segment reported a 23 percent drop in profit, which was attributed to whole bird sales, double-digit increases in per-unit shipping costs and advertising investments.
Snee also mentioned Hormel’s continued commitment to its strategic initiatives, including its acquisitions of Columbus Craft Meats, Fontanini and Ceratti, which he said are all “on track with expectations.”
As part of the company’s goal to evolve as a global branded food company and respond to the dynamics of the pork industry, Hormel announced this past week its plans to sell its pork processing plant in Fremont, Nebraska to Wholestone Farms LLC, for $30 million. On a call with analysts, Snee said investing in the aging plant to meet the supply demands of the future, including equipping it to add a second shift, wasn’t financially feasible, especially given the increasing amount of pork available on the market now. The transaction includes a multi-year agreement requiring Wholestone to supply raw materials to Hormel.
“The Fremont facility has been an important part of our company for decades, and it was critical we partnered with a buyer that would commit to investments in the facility and team members,” Snee said.