Hormel Foods easing supply chain restrictions
For the most part of the pandemic, Hormel Foods Corp. has been hindered by supply chain issues. Initiatives that have been finished have freed up capacity and allowed the business to fully satisfy demand.
“We are still managing to maintain a healthy balance between the level of demand from customers and the capacity of our supply chain to fulfill it,” stated James P. Snee, chairman, president, and CEO, in a conference call on February 18 to go over quarterly results. “This quarter, we raised our output levels by utilizing our strategic supply chain partners even more, adding additional capacity, and streamlining our operations. We anticipate that throughout the year, this steady improvement will continue. We will keep improving throughout the portfolio and have been successful in several important areas.
Although the first-quarter sales increased due to the increased capacity, the profit line suffered. The net income for the quarter that concluded on January 24 was $222 million, or 41¢ per share on the common stock. This represents a 9% decrease from the $243 million, or 45¢ per share, earned during the same period last year.
To $2.5 billion, quarterly sales increased by 3%.
Hormel’s largest business unit, Refrigerated Foods, saw a 1% increase in sales to $1.4 billion, but a 16% decrease in operating profit to $141 million. The company claims that robust growth in retail and deli sales offset declines in foodservice sales. However, the segment operating profit was under pressure due to a decline in commodity profits, higher supply chain costs associated with COVID-19, and a drop in foodservice sales.
Sales of grocery products increased by 7% to $578 million in the quarter, while operating profit increased by 35% to $92 million.
Mr. Snee stated, “This quarter, Grocery Products delivered very impressive results.” Numerous of our brands, such as Herdez, Hormel Compleats, Skippy, and Spam, showed top-line strength, which resulted in 7% growth in sales and 4% growth in volume.
This quarter, we raised the price for our Skippy business, proving once more that we can set competitive prices in our respective markets. The success of our most recent creative new products, such as Skippy Squeeze, Skippy No Sugar, and Skippy with additional protein spreads, also gives us hope.
Jennie-O Turkey Store operating income dropped 30% to $27 million while sales increased 1% to $333 million.
“Decreased foodservice sales led to higher supply chain costs associated with the COVID-19 pandemic, and increased freight costs were the main causes of the decreased profitability,” Mr. Snee stated. “While there was a notable increase in grain prices during the quarter, the impact on earnings was relatively minimal. The primary effect of higher grain prices is anticipated to have an impact in the upcoming quarters.
Hormel has increased prices throughout the Jennie-O Turkey Store product line, and Mr. Snee stated that management anticipates the price increases to take effect towards the end of the second quarter.
According to chief financial officer James N. Sheehan, soybean meal prices increased by roughly 15% during the quarter, but cornmeal prices increased by 40%. He said the company is shifting away from corn and toward a more soybean meal-based turkey feeding formula in order to counteract the price increases.
The operating income of the International & Other business unit increased by 61% to $32 million, while sales increased by 13% to $183 million.
“Our retail and foodservice business in China led the strong sales and earnings performance once again,” Mr. Snee stated. Beef jerky, Skippy, and Spam were all major contributors to the growth in
Mr. Snee has identified three factors—retail dynamics, the recovery in foodservice, and supply chain enhancements—that will impact Hormel’s long- and short-term outlook.
He stated, “Our teams in retail, deli, and international need to keep up their momentum and surpass their respective categories.” “We are still adding new households to our brands, and our repeat rates are still very high.” Nearly all new customers of our brands made two or more repeat purchases during the first quarter, demonstrating the extremely positive depth of repeat—consumers who buy our brands more than once.
As the foodservice industry recovers, businesses are looking for opportunities in specific areas.
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“Operators have been searching for products to streamline their food preparation, reduce labor costs, and save time, all while maintaining the flexibility to add their own distinctive touch to a menu item,” Mr. Snee stated during the pandemic. “With products like Hormel Fire Braised meats, Sadler’s authentic smoked barbecue, and Hormel Bacon 1, our direct sales force continues to meet their needs.”
Positive trends have been observed in our foodservice businesses recently. Since states and cities have loosened dining restrictions and allowed customers to return to their favorite restaurants, we have been able to respond swiftly to the surge in demand. As the pandemic fades, we also expect our noncommercial businesses, like K–12 education, higher education, and healthcare, to rebound.
According to Mr. Snee, two projects—the opening of a dry sausage manufacturing facility and the expansion of a pizza topping plant—were completed during the quarter, adding to the supply chain’s capacity.
“Considering that both projects were primarily built during the pandemic, it is truly amazing that both were completed on time and within budget,” he remarked.
The company has guided that sales for the upcoming fiscal year (2021) will be between $9.7 billion and $10.3 billion, while earnings per share will be between $1.70 and $1.82. The company states that the estimated impact of the Planters acquisition, which was announced on February 11, is not included in the guidance.