Hormel on the go

by Monica Watrous    View Me on Google+
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Hormel recently expanded its successful snack wrap franchise with breakfast varieties.

AUSTIN, MINN. — Hormel Foods Corp. has not been immune to changing consumer dynamics pressuring many consumer packaged goods companies lately. The company reported a 36% decrease in profit for its grocery business during the third quarter, dragged down by Dinty Moore stew and Compleats microwave meals.

“The center of the store has become a more challenging environment for many food categories,” said Jeff Ettinger, chairman, president and chief executive officer of Hormel Foods, during an Aug. 21 conference call with financial analysts to discuss third-quarter earnings. “However, we have several items positioned in the center of the store that continue to grow even in this more difficult time, such as Skippy peanut butter, Hormel Bacon Toppings and the Herdez line of salsas and sauces within our MegaMex Foods joint venture.”

Efforts to restore growth to the Compleats line, including positioning the meals as healthy and higher-end, have failed to resonate with consumers.

Hormel's Compleats and Dinty Moore lines dragged down the company's grocery business during the quarter.

“We do believe we can get, kind of go back to the basics and get this product line stabilized,” Mr. Ettinger said. “Whether it’s going to be a big growth catalyst for grocery products anymore, at this point, I guess, we’re not seeing that. But we think between Mexican food and Skippy and some of the other items, that grocery should be able to meet their growth objectives using those items.”

As consumers drift to the perimeter of the grocery store, Hormel’s refrigerated foods business is heating up. Dollar sales for the segment increased 12% during the quarter, led by Hormel Black Label Bacon, Lloyd’s Ribs and REV snack wraps, which has become one of the company’s most successful product launches. During the quarter, Hormel expanded the line to include four breakfast varieties, each with a flatbread, eggs, cheese and a breakfast meat.

“We had identified that we really thought we needed to provide more on-the-go offerings, and so, hence, our innovation with REV,” Mr. Ettinger said. “That was a big motivator, frankly, behind the Muscle Milk acquisition, was that people are viewing those items in many cases as meal replacements, consumed on-the-go.”

Hormel announced on June 30 it was acquiring CytoSports Holdings, Inc., maker of Muscle Milk, for approximately $450 million. Products manufactured under the brand include ready-to-drink beverages, protein-based powders, sports nutrition bars and energy chews.

“I think what we are doing, if you look at the core portfolio, Hormel Foods clearly started in 1891 as a pork company, and the pork value-added products are still very important to our overall operation with sales of those items going through both the refrigerated foods and, to some extent, grocery products segment,” Mr. Ettinger said. “But over the years, we, clearly, have tried to diversify the portfolio to mitigate risk exposure in terms of raw material, but probably more importantly, to stay up with the consumer. And so our Mexican food franchise, we are trying to get more aggressive in the health and wellness area through Jennie-O and Natural Choice.”

For the third quarter ended July 27, Hormel earned $139,014,000, equal to 52c per share on the common stock, up 22% from $113,905,000, or 43c per share, in the prior-year period, despite headwinds from record-high beef, pork and chicken input costs.

Net sales increased 5.8% to $2,284,947,000 from $2,159,525,000 a year before, buoyed by strong demand for pork and turkey and increased sales of value-added products.
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