AUSTIN, MINN. – Strong results from value-added activities of Hormel Foods Corp. contributed to record profits for the company in the first quarter of fiscal 2022 and provided a sign that Hormel is heading in the right direction with its efforts to transform its chilled foods and Jennie-O Enterprises Turkey Store.
“From an earnings perspective, the intentional measures we have taken to offset inflationary pressures are working,” said James P. Snee, Chairman, President and Chief Executive Officer. “These actions include pricing, improving promotional effectiveness and moving to a more profitable mix.
“We saw strong results in the Chilled Foods value-added businesses and the Jennie-O Turkey Store business, which benefited from favorable market conditions and our initial transformation efforts. The Planters business was also a catalyst for earnings growth as we continued to leverage the expertise and scale it provided to our high-growth snacks platform.
Net income for the first quarter ended January 30, 2022 was $239.57 million, or 44¢ per share on common stock, compared to $222.28 million, or 41¢ per share, in the first quarter 2021.
During the first quarter, Hormel Foods reported record net sales of $3 billion, up 24% from $2.46 billion in the same quarter a year earlier.
“Organic sales increased 13% for the quarter,” said Jacinth Smiley, chief financial officer. “Gross profit increased by $89 million over last year, an increase of 20%. This improvement was due to the strength of Refrigerated Foods, Jennie-O Turkey Store and the addition of the Planters Snack Nuts business.
Hormel is moving forward with shifting its Jennie-O Turkey Store portfolio to value-added branded products, as the company is already seeing the benefits of the strategy.
“For example, as an industry leader in Turkey, we are investing in the Jennie-O brand to drive the growth of our most profitable and high-growth product lines in retail and foodservice,” said Mr. Snee said on a conference call with analysts. “Along with improving our value-added products, we are also taking aggressive steps to optimize our portfolio. Combined with increased pricing, our investments in branding and SKU rationalization lead to a healthier business. »
First quarter net sales increased 15% to $384.47 million. Sales increased due to improved catering performance, increased whole bird shipments and pricing actions across the portfolio, the company said.
Volume decreased 3%, primarily due to lower commodity volumes due to labor shortages. Higher commodity prices and strong foodservice sales led to a significant improvement in segment profit to $43.74 million, up 62% from a year ago.
The company remains on track to close its Benson Ave processing plant. in Willmar, Minnesota, and to transfer employees to the company’s newer and larger facilities, which are also in Willmar. The company expects this process to be completed in the second quarter.
Jennie-O’s supply chain was largely managed separately from the rest of the company’s supply chain at Hormel Foods because it is vertically integrated. Mr. Snee said the company will leverage its One Supply Chain capabilities to integrate all facilities into the wider Hormel network.
“As we integrate these factories into the Hormel Foods network and streamline commodity SKUs, we will free up space for additional production capacity of many product lines that will serve any portfolio brand Hormel Foods,” said Mr. Snee. “This is a monumental step that will make our entire business more efficient.”
Mr. Snee added that the company expects the Jennie-O Turkey Store business to achieve higher or stable growth and improved profitability over time.
To support the changes and maintain momentum, Hormel has invested in the Jennie-O, Planters and other brands.
“We have increased advertising investments in all four segments to support the Planters, Spam, Jennie-O and Skippy brands as well as the Hormel pepperoni and Hormel chili product line,” Ms. Smiley said. “For the quarter, ad spend increased 38%, or about 2¢ per share.”
Ms. Smiley noted that Jennie-O also absorbed higher logistics and supply chain costs. Feed costs jumped more than 35% from 2021. The company hedged most of its grain costs to protect against market price volatility during the year, it said. she explains.
Mr. Snee noted that the Planters business continues to live up to company expectations and that brand innovations are in the pipeline.
“We’re on track to launch many innovative new items, including Planters Sweet & Spicy Dry Roasted Peanuts, and refresh the brand and packaging,” he said. “Recently we have also invested in advertising with the All or One campaign.”
The company also completed the supply chain integration of the Planters and Corn Nuts businesses during the first quarter, which should result in continued synergies and improved customer service levels.
On a segment basis, net sales for the Chilled Foods business were $1.63 billion, an increase of 19%. Segment profit increased 15% to $162.39 million. Sales volume decreased by 4%.
“Consistent with the company’s long-term strategy to better align resources with value-added growth, the overall volume decline was due to lower commodity sales following the new supply agreement. in the company’s pork,” the company said.
Retail and deli sales growth was driven by products such as Applegate natural and organic meats and Hormel Gatherings party platters, the company added. Other products such as the Columbus take-out deli also benefited from new production capacity in Nebraska.
Net sales increased 48% to $855.59 million in the grocery business. Segment profit climbed 8% to $99.49 million.
Wholly, Spam, Dinty Moore and Mary Kitchen led the company’s sales growth. Segment profit increased due to the contribution from the Planters Snack Nuts business, which more than offset lower MegaMex results and higher operational and logistics costs, Hormel said.
The international business recorded net sales of $176.77 million, a decrease of 3%. Segment profit decreased 19% to $26.084 million.
Hormel attributed the result to weak demand in China caused by COVID-related restrictions, ongoing export logistics challenges and lower fresh pork export volume resulting from the new pork supply agreement. company pig. Segment profit declined due to lower sales across the portfolio and lower equity in earnings.
“We reaffirm our sales and earnings guidance,” Snee said. “We expect the demand environment to remain supportive, pricing actions to combat inflationary pressures, and continued growth in products such as Columbus deli meats, Applegate natural and organic meats, walnuts Planters snack and prepared protein for catering and pizza toppings. Additionally, we expect the operating environment to remain volatile, but our supply chain will continue to improve as labor pressures ease and new capabilities come online to support main growth platforms, such as dry sausages, pizza toppings and bacon.