Hormel's sales slip on turkey shortage

by Monica Watrous
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Jennie-O turkeys
Hormel's Jennie-O Turkey Store segment’s profit declined as flocks lost earlier in the year due to avian influenza created significant volume shortfalls in operations and sales.

AUSTIN, MINN. — Hormel Foods Corp. posted lower sales for the fiscal year and fourth quarter due to turkey supply shortages and price deflation in pork markets. But the Austin-based company achieved record earnings behind improved productivity and margin expansion.

For the fiscal year ended Oct. 25, Hormel earned $686,088,000, equal to $2.60 per share on the common stock, up 14% from year-ago earnings of $602,667,000, or $2.28 per share. Net sales for the year declined 1% to $9,263,863,000, which compared with prior-year sales of $9,316,256,000.

Contributing to full-year results were such products as Spam luncheon meat, Hormel pepperoni, Dinty Moore stew, Hormel Gatherings party trays, Hormel Natural Choice meats, Wholly Guacamole dips and Muscle Milk protein nutrition products.

Jeffrey Ettinger, Hormel
Jeffrey Ettinger, chairman and c.e.o. of Hormel

“We are especially pleased with the sales growth of our Skippy peanut butter products, given a price decrease in the peanut butter category earlier this year,” said Jeffrey Ettinger, chairman and chief executive officer, during a Nov. 24 earnings call with financial analysts. “We continued to build momentum in our snacking portfolio, with excellent results from our Wholly Guacamole Minis, along with positive early reads on our most recent innovation, Skippy P.B. Bites.”

Fourth-quarter earnings advanced 9% to $187,231,000, or 71c per share, from $171,264,000, or 65c per share. Net sales fell 6% to $2,400,858,000 from $2,543,771,000.

The Jennie-O Turkey Store segment’s profit declined 23% on an 18% sales decrease for the fourth quarter, as flocks lost earlier in the year due to highly pathogenic avian influenza created significant volume shortfalls in operations and sales.

“We have now completed the repopulation of all of our turkey barns,” Mr. Ettinger said. “We have not experienced any new outbreaks thus far into the fall migration of wild birds. While we have been able to purchase some turkey meat to partially offset flock losses, turkey breast prices remain at a record high due to overall industry shortages.

“Our team continues to work closely with government agencies and other organizations as they study this virus and work to control future outbreaks, and with our customers as we manage through the turkey breast meat shortages. We have made many adjustments and are prepared to minimize any future impact to our operations in the event that the virus returns to our area as the migration season progresses.”

Hormel also announced plans to sell a portion of its Diamond Crystal Brands business. The company recorded pre-tax, nonrecurring charges of $21.5 million retailed to a goodwill impairment charge for the business, which is part of Hormel’s Specialty Foods segment.

“While the business is still performing acceptably, we feel it no longer fits within our strategic priorities,” Mr. Ettinger said. “We will pursue a sale over the course of the next few months, allowing us to redeploy capital in investments that better support our growth goals.”

Looking ahead to fiscal 2016, Hormel expects to benefit from improved pork and beef input costs, favorable market conditions, strong demand for newly acquired Applegate natural and organic meat products and increased brand support for REV snack wraps, Hormel Gatherings party trays, Hormel pepperoni, Spam and Skippy. The company projects fiscal 2016 earnings of $2.85 to $2.96 per share.
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