BOSTON — Executives at Hormel Foods Corp. spent the third-quarter analysts conference call explaining the headwinds that caused the food company to struggle on several fronts. Speaking to analysts at the Barclays Global Consumer Staples Conference in Boston Sept. 6, James P. Snee, president and chief executive officer, discussed the company’s strategy for moving the company past those challenges and continuing the Hormel Foods’ “long-term growth story.”
|James Snee, president and c.e.o. of Hormel Foods|
“…this long-term growth story consists of four key corporate goals — to deliver 5% top-line growth,” Mr. Snee said. “A very aggressive number, but I would remind you that, that is an all-in number, organic and acquisition; 10% bottom-line growth. We want 15% of our net sales by the year 2020 to come from items that have been developed and innovative in the last five years. And we know that we need to continue to expand our margins, and we want to migrate toward the top quartile of our peers and do it by the year 2020.”
Mr. Snee explained that to reach those goals, Hormel must evolve to become a broader food company beyond the protein space through global expansion, across retail and food service channels and by better-managing volatility in commodity markets.
He pointed to the company’s acquisition of Justin’s, Skippy brand peanut butter, Muscle Milk and Wholly Guacamole as evidence of Hormel’s transition beyond animal proteins.
“We’ve acquired some great non-meat protein items that have really rounded out our portfolio” he said. “…So, it’s really this rounding out of our business in the protein space, the nonmeat protein and then flavor enhancers that will allow us to evolve to become a broader food company.”
Hormel also brings a stable of powerful brands to domestic and international markets. Mr. Snee pointed to a licensing agreement in South Korea for Spam, and a joint venture agreement with Purefoods in the Philippines that continues to deliver year-over-year growth.
“We’ve got a great export business with Spam and Skippy and some fresh pork items,” he added. “And then we have our multinational piece of the business, which, up to several weeks ago, was really just our presence in China, which has been growing and getting more significant with each passing year. But with the addition of the Ceratti brand, we now have a multinational footprint in South America, more specifically, in Brazil, for the first time ever.”
Additional strengths that keep Hormel well-positioned to compete include industry expertise, retail and food service direct selling organizations and strong portfolio of shelf-stable products.
“We’re able to understand the needs of both retail and food service customers unlike anyone in the industry,” Mr. Snee said. “And we have a stable of iconic brands. Everybody knows Spam and Skippy. But when you’ve got such strong brands, 35 of them, that have a No. 1 or No. 2 position, it really helps fuel the direct selling organization. So, this industry-leading expertise is one of the key ingredients that allows us to be so uniquely positioned to successfully compete going forward.”
Mr. Snee said the recent acquisition of Fontanini Italian Meats and Sausages should confirm the company’s desire to expand and accelerate growth in the food service channel. He expressed confidence in Hormel’s ability to produce results in the food service space.
“This is a tremendous opportunity in a branded space, not a commoditized space, a branded space,” he noted. “We know that we can help food service distributors and operators who are dealing with larger macro issues around labor, attracting labor, the cost of labor, trying to make sure there’s consistency across their menu items. We are experts in this space and know that we’ll continue to be very successful.”
Global growth also is in the works at Hormel, and expanding the company’s footprint in international markets will be integral to Hormel being less dependent on the domestic business, Mr. Snee said. International business accounts for 5% of company sales, and Hormel will continue seeking opportunities for international growth, he said. An example of Hormel’s global ambitions is the recent acquisition of Cidade do Sol, a Brazilian meat processor that sells products under the Ceratti brand, for approximately $104 million.
“We also have expanded our capacity in China, by now doubling it with the completion of our Jiaxing facility that will allow us to, again, meet the needs of retail and food service customers,” Mr. Snee said. “And we believe there’s an opportunity to really recreate our U.S. model on a more global basis, whether that be in Asia or, perhaps, in South America and Brazil. It’s a model that served us well; we know it. We know how to recreate it and are looking for more and more opportunities to do that.”
Global expansion, increased balance across the product portfolio and stronger positions in food service and retail channels are key actions Hormel is undertaking that ultimately will offset some of the commodity price volatility that weighed on the company’s third-quarter earnings. Another step Hormel intends to take to that end includes enhancing value-added offerings.“We’re going to continue to make fewer commodity sales,” Mr. Snee said. “And through innovation and acquisition, we’ll expand our portfolio of raw materials.”