Hormel sees record quarter, but challenges from bird flu

Published 9:44 am Thursday, May 21, 2015

Hormel Foods Corp. reported another record second quarter Wednesday, but the company’s recent losses from avian flu will cause the company to fall on the lower end of its projected earnings per share guidance at the end of the year.

Hormel representatives announced net earnings of $180.2 million, up 29 percent from net earnings of $140.1 million a year earlier, and record sales of $2.3 billion, up from $2.2 billion last year. Despite that, the company still expects to finish 2015 at $2.50 to $2.60 per share because of the hit Jennie-O Turkey Store has taken from the avian flu.

“We would be talking to you today about raising the guidance range,” Hormel President and CEO Jeff Ettinger said in a conference call Wednesday.

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Jennie-O profit increased by 41 percent on the quarter and accounted for 19 percent of sales. In addition, Jennie-O sales for the quarter increased by 15 percent, including strong sales of Jennie-O lean ground turkey and rotisserie turkey.

Yet the company was hit hard by the avian flu toward the latter half of the second quarter. Ettinger said 55 farms thus far have been closed because of the effects of avian flu, which will affect Jennie-O’s outlook in the second half of the year. In addition, Hormel expects to buy turkey from other suppliers, which will further affect its Jennie-O profits.

The company is working to stem turkey losses from avian flu, but Ettinger said Hormel may discuss moving its turkey farms out of Minnesota and Wisconsin in the future.

“It’s going to take them some time to get back into production,” Ettinger said.

Profit in refrigerated foods, which accounts for 45 percent of sales, increased 52 percent largely due to lower input costs and sales growth from value-added items, including retail sales of Hormel pepperoni and Hormel Gatherings party trays, foodservice sales of Hormel’s fully cooked bacon and Hormel pizza toppings. Sales were down 8 percent, reflecting lower pricing due to declining pork markets and the dissolution of the Precept Foods joint venture.

“Innovation is still is a key component for what we’re seeing for success in refrigerated foods and other divisions,” Ettinger said.

Hormel’s acquisitions continued to prove beneficial. Specialty Foods sales increased increased 32 percent, largely due to the addition of Muscle Milk protein nutrition product sales.

Specialty foods, 13 percent of sales, posted an 11 percent increase in segment profits despite a $4.5 million charge due to the closure of its CytoSport production facility in Benicia, California.

Grocery products, 17 percent of sales, saw profit increase 1 percent and sales increase 1 percent, including the additional net sales of MegaMex Foods products not included in the prior year.  Lower input costs and strong sales growth of items such as Spam family of products and Wholly Guacamole dips in the MegaMex Foods joint venture contributed to the gains. The company saw softer sales of Hormel Compleats microwave meals.

The company’s international division increased its segment profit by 2 percent, driven by improved joint venture results. But sales decreased 7 percent, primarily due to declines in exports which were hampered by port challenges and demand pressure from the strong U.S. dollar.

Second quarter summary:

• Record diluted EPS of $0.67, up 29 percent from $0.52 per share.

• Record dollar sales of $2.3 billion, increased 2 percent; volume up 5 percent.

• Total segment operating profit increased 29 percent.

• Refrigerated Foods segment operating profit up 52 percent; volume up 1 percent; dollar sales down 8 percent.

• Jennie-O Turkey Store segment operating profit up 41 percent; volume up 14 percent; dollar sales up 15 percent.

• Grocery Products segment operating profit up 1 percent; volume up 4 percent; dollar sales up 1 percent.  Excluding incremental net sales of MegaMex Foods products, volume down 4 percent and dollar sales down 5 percent.

• Specialty Foods segment operating profit up 11 percent; volume up 17 percent; dollar sales up 32 percent.  Excluding incremental sales of CytoSport Holdings, Inc. (“CytoSport”) products, volume down 6 percent and dollar sales down 6 percent.

• International & Other segment operating profit up 2 percent; volume down 3 percent; dollar sales down 7 percent.

— Jason Schoonover contributed to this report.