Too Much Turkey Dents Profits for Hormel Foods

26 May 2017 --- Producers of canned and cured meats and spam Hormel Foods says that an oversupply of turkey impacted its second quarter results and that its net earnings of US$211 million declined 2 percent compared to the previous year.

Announcing its second quarter results and continued margin expansion, Hormel Foods says the results reflect the divestiture of the Diamond Crystal Brands business, the divestiture of the Farmer John business, and the acquisition of Justin’s, LLC.

Highlights of the results include diluted earnings per share of $0.39, down 2.5 percent from 2016 EPS of $0.40, sales of US$2.2 billion, down 5percent; Non-GAAP1 adjusted sales up 2 percent. Meanwhile, Specialty Foods operating profit was down 16 percent while volume was down 33percent.

At Hormel’s division of Jennie-O Turkey Store operating profit were down 29 percent, volume was down 6 percent and sales down 8 percent. These decreases are primarily due to lower turkey commodity prices, pricing pressure from competing proteins, and increased operating expenses.

"Despite ongoing challenges in the turkey industry, our balanced model allowed us to deliver earnings within two percent of last year’s results,” said Jim Snee, president and chief executive officer. “Three segments delivered earnings growth, margin expansion, and adjusted volume and sales growth this quarter.”

“Growth in many of our key brands drove excellent results in the Grocery Products and International segments. The divestitures of Farmer John and Diamond Crystal Brands allowed Refrigerated Foods and Specialty Foods to enhance their operating margins,” Snee said. “Unfavorable market conditions in the turkey industry caused by an oversupply of turkey continued to pressure Jennie-O Turkey Store sales and earnings.”

Effective May 15, the company paid its 355th consecutive quarterly dividend at the annual rate of US$0.68. Looking forward, Hormel warned the headwinds facing the unit will continue and as a result, it now expects full-year earnings to come in at the lower end of its US$1.65 to $1.71 guidance.

“We are maintaining our fiscal 2017 guidance range of $1.65 to $1.71 per share but expect the results at Jennie-O Turkey Store to push our full-year earnings toward the lower end of this range,” Snee said. “We expect the pressure on Jennie-O Turkey Store to continue for the remainder of the fiscal year given the oversupply in the turkey industry.”

“Even in this challenging commodity environment, our team is working hard to generate earnings growth by providing customers, consumers, and operators with on-trend, innovative value-added products,” Snee said.

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