AUSTIN, MINN. – Hormel Foods Corp. is taking steps to further streamline its operations; continuing to move away from the price volatility often found in the markets for commodity meats and focusing on manufacturing branded, value-added offerings.
“Over the past decade, Hormel Foods has deliberately evolved from a meat-centric, commodity-driven company with a heavy focus on retail, pork and turkey to a global branded food company with leading brands across numerous channels,” said James P. Snee, chairman, president and chief executive officer, during a Dec. 9 conference call to discuss fiscal 2021 financial results. “Our company today is more food forward than ever with a sharp focus on the needs of our customers, consumers and operators.”
The company plans to continue its evolution in fiscal 2022 by shifting its Jennie-O Turkey Store product portfolio away from commodity items to branded, value-added products.
“This is similar to the successful strategy we have executed in Refrigerated Foods over the past 15 years,” Snee said. Hormel’s Refrigerated Foods business unit includes such brands as Hormel, Black Label, Applegate, Columbus and others.
During the first half of 2022, Hormel Foods plans to close its Benson Ave. turkey processing plant in Wilmar, Minn.
“This plant is an older, inefficient facility that produces numerous commodity items,” Snee said. “Value-added products will be consolidated into multiple other facilities.”
Snee said the company will update its plans for the Jennie-O business unit in early 2022. He added Hormel Foods also entered into a five-year agreement with pork processor Wholestone Farms, Freemont, Neb., to supply the company with fresh pork. The value of the contract will be for approximately $350 million worth of commodity pork annually.
“This new agreement more closely matches our pork supply with the needs of our value-added businesses while simultaneously reducing the amount of commodity pork we sell,” he said. “Similar to the rationale for selling the Fremont plant in 2018, this new agreement further diversifies us away from commodity sales, increases our flexibility within our supply chain and decreases our earnings volatility.”
While the changes being made are meant to minimize future volatility, there was little in Hormel’s fiscal 2021 results. Net income for the year ended Oct. 31 surged to $909 million, equal to $1.66 per share on the common stock, up from earnings of $37 million in fiscal 2020, equal to 6¢ per share.
Annual sales rose 18.5% to $11.4 billion.
“Our top-line growth was incredibly balanced as each of our go-to-market sales channels and business segments posted strong double-digit sales gains, underpinned by value-added volume growth, pricing and a better mix,” Snee said.
From a bottom-line perspective, three of Hormel’s four business units reported a profit during the year. Jennie-O Turkey Store was the exception due to high feed costs throughout the year, according to the company.
Looking ahead to fiscal 2022, Snee offered an optimistic outlook.
“We expect net sales to be between $11.7 billion and $12.5 billion and for diluted earnings per share to be between $1.87 and $2.03 per share,” he said. “We expect growth in excess of our long-term goals due to organic growth across each of our segments and strength in our Planters business.”
During the fourth quarter of fiscal 2021, Hormel Foods earned $282 million, equal to 52¢ per share on the common stock, and an improvement over the fourth quarter of fiscal 2020 when the company earned $234 million, equal to 43¢ per share.
Sales rose to $3.5 billion during the quarter from $2.4 billion the year prior.
Of note during the quarter was foodservice channel sales, according to the company.
“Our foodservice teams across the organization posted 72% sales growth for the quarter, 33% higher than pre-pandemic levels,” Snee said. “This followed second-quarter growth of 28% and third-quarter growth of 45%.
“Strength was broad-based with significant contributions from Refrigerated Foods, Jennie-O Turkey Store and MegaMex. We also saw a strong recovery in our noncommercial segments, including college and university and K-12 institutions.”
Snee added that during the fourth quarter the company started to see relief in raw material prices compared to earlier quarters.
“However, labor rates, freight, supplies and raw material costs remain above year-ago levels and in the case of freight, increased further,” he said.