AUSTIN, Minn. – Weak performances from Hormel Foods Corp.’s Grocery Products and International & Other business units hindered the company’s performance during fiscal 2019, ended Oct. 27.
The Grocery Products business, which includes such brands as Spam and Skippy, was pressured by the divestment of CytoSport. During the year, Grocery Products sales fell 4.5 percent to $2,369,317,000. Segment profit declined 4 percent to $339,497,000.
“Grocery Products had a year of mixed results,” said James P. Snee, chairman, president and CEO, during a Nov. 26 conference call with financial analysts.
Sales for the International & Other business fell 5 percent to $593,476,000. Business unit profit fell 15 percent to $75,513,000.
“The full-year results for the International segment were disappointing, as the team encountered numerous challenges stemming from African swine fever in China, the impact from tariffs and global trade uncertainty,” Snee said. “These headwinds greatly masked excellent growth in our China business.”
Both business units were a drag on the company’s full-year results. Net income for the year was $978,806,000, equal to $1.83 per share on the common stock, down from fiscal 2018 when the company earned $1,012,140,000, or $1.91 per share.
Company sales for the year fell slightly to $9,497,317,000 from $9,545,700,000.
Refrigerated Foods business unit sales rose 2 percent during the year to $5,210,741,000. Segment profit rose 2 percent to $681,763,000.
“Refrigerated Foods grew earnings in spite of a 50 percent decline in commodity profits as our value-added businesses delivered strong growth,” Snee said. “The Black Label, Bacon 1, Fire Braised, Natural Choice and Applegate brands were all meaningful contributors to value-added growth.”
Management said it sees growth in fiscal 2020 from the Jennie-O Turkey Store business, which recorded flat sales during the year of $1,323,783,000. Segment profit fell 11 percent to $117,962,000.
“Jennie-O Turkey Store managed through both industry oversupply and the effects of two lean ground turkey recalls,” Snee said. “The fourth quarter proved that the Jennie-O brand remains strong, and the additional investment we are making in the business is the right long-term decision. This team clearly has momentum going into 2020.”
In fiscal 2020, management is guiding sales in the range of $9.5 billion to $10.30 billion, and earnings per share between $1.69 per share and $1.83.
“From a total company perspective, we expect to deliver sales growth in excess of our 2 percent to 3 percent organic sales growth goal in fiscal 2020,” Snee said. “Two key drivers to sales growth across the company are innovation and e-commerce.”
The company had set a goal of generating 15 percent of sales from new products by fiscal 2020. Snee said such new items as Natural Choice Snacks, Stack and Wraps, Herdez Guacamole Salsa, Applegate blended burgers, and Skippy P.B. & Jelly Minis will help the company achieve the goal.
“Second, our e-commerce capabilities continue to improve, especially for the online grocery pickup segment,” he said. “Through our efforts in analytics, package optimization and customer expansion, we see another year of strong double-digit growth for e-commerce. We expect to deliver another year of operating income growth in 2020.”
Headwinds that may impact the company’s fiscal 2020 performance include African Swine Fever and an uncertain global trade situation.
“African Swine Fever continues to impact the global hog supply as the disease spreads in China, Southeast Asia and parts of Europe,” said James N. Sheehan, chief financial officer. “The USDA. is projecting exports to grow 7 percent to 8 percent in 2020. To meet the growing need for exports, total domestic production is expected to increase 2 percent to 3 percent, according to the USDA. Our prices are expected to increase in excess of 15 percent in 2020.”