MIAMI — Five months after unveiling a transformation and modernization plan focused on growing operating income by $250 million by 2026, Hormel Foods Corp.’s “all-hands-on-deck” approach is driving solid progress, company executives said during a March 13 presentation at the Bank of America Consumer and Retail Conference.
Hormel is incorporating a three-part plan to achieve its $250 million operating income target, with the first piece geared toward getting the base business back to 5% to 7% growth and the second piece centered around strategic value capture.
It is the third piece, though, that is the biggest component of the plan, said Jacinth C. Smiley, executive vice president and chief financial officer. Smiley said the third piece, which features a few pillars, seeks to generate $200 million from transformation/modernization.
“Biggest piece is around the supply chain efficiency,” she said. “Another piece is around the data and analytics component. And then third, on portfolio optimization.”
Smiley said Hormel’s renewed focus on its approach to planning and buying has improved its supply chain and contributed to strong quarterly results.
“You think end-to-end demand-supply, how are we buying more effectively?” Smiley said. “What should it cost us to buy? And Century is partnering with us certainly to do that and RFP-ing where we need to RFP (request for proposal), how to ensure that we have the right end-to-end planning solution and the right infrastructure to support the business.”
Portfolio optimization also will play a major role in Hormel’s efforts to reach its operating income growth target.
“Doesn’t matter the size of the customer, doesn’t matter the SKU (stock-keeping unit), does it make — how much money does it make, what’s the margin?” Smiley said. “And so we’ve now taken this back to say, OK, what do we need to do to ensure that everything sort of goes up into this right quadrant the way we have now segmented the portfolio to say what’s low complexity, high margin and strategic to the company because that’s where we're trying to get everything to go is into that upper-right quadrant.
“And so we’re making really good progress working through that. I have already identified about 10% or so of items that we need to either fix or rationalize from the portfolio, and we’re continuing to make progress there. So super excited about that. And of course, some of the results, that very piece about getting the base business back to a margin structure that we are happy about that fits into our long-term algorithm this quarter, and what we have delivered this quarter is really just the beginning of doing that work.”
