Hormel reports record earnings; Increase in input costs has impact on 3Q results

Published 8:30 am Friday, August 25, 2017

Despite the drag of higher costs for some of its primary raw materials, Hormel Foods Corporation had record-high pre-tax earnings in its third quarter of $278 million, compared to $274 million in 2016, company president and CEO Jim Snee said on Thursday.

Still, Snee said the pressure from those inputs and an unfavorable turkey market prompted the company to “lower our full year guidance (expectation) to $1.54 – $1.58 per share from the low end of $1.65 to $1.71 per share.”

Snee spoke to investors Thursday upon the release of the company’s third quarter earnings.

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Snee said the company faced record-high input costs for two of the company’s primary raw materials, pork bellies and beef trim. Pork bellies are used to make bacon, while beef trim is used in both chili and pepperoni.

Even though the company inched past last year’s earnings number, “the results did not meet our expectations,” said Snee.

“Our team is working to mitigate the effects of volatile commodity markets through increased pricing, strategic promotional activity, and our on-going innovation efforts,” Snee said.

Strong earnings in the Grocery Products and Refrigerated Foods divisions helped to offset the lower earnings in the other three, he said.

“Specialty Foods results are disappointing, primarily caused by a
soft quarter for Muscle Milk, ready-to-drink protein products,” he said. “As we anticipated, Jennie-O Turkey Store continues to navigate through unfavorable market conditions in the turkey industry.”

The International division recorded a 16 percent drop in profits in the third quarter; Specialty Foods had a 14 percent drop and Jennie-O Turkey Store, a drop of 20 percent.

Overall, sales were down by 4 percent in the third quarter, at $2.2 billion.

However, the company continues to “make excellent progress towards our strategic growth initiatives outlined in our 2017 Investor Day,” Snee reported. “We separately announced three strategic investments which perfectly align with our path forward.”

Those include the acquisition of Fontanini Italian Meats and Sausages and the Ceratti brand, a premium value-added meats company in Brazil (see related story).

And, he said, “earlier this month we committed over $130 million to expand production capacity for precooked bacon at our Dold Foods facility in Wichita, Kansas. The demand for bacon, especially Hormel Bacon 1, a new fully cooked bacon, has been incredible. This strategic investment significantly increases our capacity and gives us a runway for future growth in foodservice.”