Skippy leads Hormel to record quarter

Published 10:33 am Wednesday, February 19, 2014

By Adam Harringa

Hormel Foods executives often emphasize the importance of their company’s diverse portfolio. Last quarter, it paid off again, as Skippy led the way to record sales and profit.

Hormel reported Thursday morning a record of $2.2 billion in sales for the first quarter, up 6 percent from the same quarter in 2013. It also reported a record $153.3 million in profit, up 18 percent from $129.7 million a year earlier.



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“We achieved excellent results in the first quarter,” Hormel CEO Jeff Ettinger said in a new release.

Much of that was thanks to Hormel’s newest acquisition, Skippy peanut butter, which the Austin-based company bought for $700 million in January 2013. Skippy is recorded in Hormel’s grocery products and international divisions, which reported an increase in sales over last year of 20 and 24 percent, respectively. Take Skippy out of the equation, however, and grocery products’ sales would have been down 2 percent, and international sales only would have been up 12 percent.

“Our recently acquired Skippy peanut butter business was a strong contributor to our grocery products segment results this quarter,” Ettinger said.

Executives say the company’s diverse portfolio allows it to steadily grow — annual profits have increased for five consecutive years, from $285.5 million in 2008 to $526.2 million last year — because certain segments pick up the slack when other categories are down. This quarter, four of Hormel’s five divisions posted increased sales and profit, but the specialty foods division was down.

Specialty foods, which accounts for 9 percent of sales, posted an 11 percent decrease in profit and 16 percent decrease in sales for the quarter as the company lost its agreement with Diamond Crystal to sell the Splenda sweetener brand in June 2013. Hormel announced at the time it would close its Diamond Crystal plant, which employed 126 workers, in Perrysburg, Ohio, as a result.

“As anticipated, our specialty foods team was unable to post increases this quarter as it rebuilds its product portfolio,” Ettinger said.

Other specialty products include single-serve restaurant packets, nutritional food products, supplements and contract manufacturing.

Refrigerated foods, which accounts for 50 percent of sales, reported considerably higher margins, with a 59 percent increase in profit and 6 percent increase in sales, driven by higher pork operating margins, a continued, strong demand for its bacon products, and growth in its foodservice business.

The Jennie-O Turkey division, which accounts for 18 percent of sales, increased sales by 2 percent and profit by 1 percent. A media campaign the company launched in January featuring lean ground turkey helped, along with strong sales for Jennie-O lean ground turkey tray packs and chubs, and turkey bacon. The division also benefited from lower feed costs, the company said.

Grocery products, which also account for 18 percent of sales, increased profit by 13 percent, and the international division, which accounts for 5 percent of sales, increased profit by 32 percent thanks to a strong quarter from Spam along with Skippy.

Ettinger expects the refrigerated foods division to keep its momentum during the second quarter, and said the company has increased distribution of Skippy over the past year, both domestically and internationally. He also expects growth from newer products like Hormel Rev snack wraps and Hormel Fire Braised meats.

“We are anticipating tighter pork raw material supplies over the next few months, but the overall impact to our industry remains to be seen,” Ettinger said. “Unusually cold weather and higher fuel costs will continue to inflate cost of goods in our Jennie-O Turkey Store segment in the second and third quarters.”

Ettinger said the company will maintain its 2014 earnings per share guidance of $2.17 to $2.27.