Hormel Foods’ business is affected by an increase in HPAI

AUSTIN, MINN. — Cases of highly pathogenic avian influenza (HPAI) that emerged this week in California, Indiana, Minnesota and North Dakota, including in a Hormel Foods Corp. flock, have company executives on edge. Outbreaks earlier this year affected the company’s Jennie-O Turkey Store business, and the new cases could have a lasting impact.

“With the positive cases identified earlier this week in our supply chain, we expect the impact of HPAI to reduce production volume at our turkey facilities through at least the end of the first quarter of fiscal 2023,” said Jacinth Smiley, CEO , during a Sept. 1 conference call to discuss Hormel’s third-quarter results.

Smith said HPAI outbreaks earlier this year reduced third-quarter turkey volumes by 20 percent, and that she expects fourth-quarter volumes to be down 30 percent.

“Our expectation is as we go into the first quarter of next year, if nothing else happens from an HPAI perspective, we should recover our supply there and be in a good place,” she said.

She added that the current situation is evolving and it is too early to say what the impact might be in the first quarter.

Tight turkey supplies benefited Hormel subsidiary Jennie-O Turkey Store in the third quarter. While the segment’s sales for the quarter ended July 31 fell 8% to $324 million, the business unit’s profit rose 537% to $37 million.

“The Jennie-O Turkey Store team significantly exceeded our earnings expectations for the quarter as the team effectively managed the limited supply of turkeys and maximized operational efficiency while working to restore affected turkey farms along the supply chain,” said James P .Sni, Chairman, President and Chief Executive Officer.

Hormel Foods’ net income for the quarter was $219 million, or 40¢ per share of common stock, compared with $177 million, or 32¢ per share, a year earlier.

Quarterly sales rose to $3 billion from $2.9 billion a year earlier.

“We have successfully achieved seven consecutive quarters of record sales and four consecutive quarters of earnings growth,” Snee said. “In the current environment, this is a particularly remarkable achievement.”

Refrigerated Foods business unit sales rose 2% in the quarter to $1.66 billion, and segment profit rose 16% to $177 million.

“Refrigerated Foods delivered double-digit growth in retail and foodservice earnings, more than offsetting lower merchandise profitability,” Snee said.

Segment sales increased due to continued strong performance from the company’s foodservice business, growth from many retail products, strategic pricing actions across the portfolio and the inclusion of the Planters snack business in the convenience channel, according to the company.

While grocery sales rose 25% to $870 million, the segment’s profit fell 5% to $77 million.

“Segment profit decreased 5% due to the impact of continued inflationary pressures and lower results from MegaMex,” Smith said.

Sales at Hormel’s International & Other division fell 5% to $181 million, and segment profit fell 9% to $25 million. The company attributed the declines to lower sales in China, partly due to the impact of the country’s COVID-19 restrictions.

Management also revised up the company’s guidance for fiscal 2022 to raise sales to a range of $12.2 billion to $12.8 billion from previous guidance of $11.67 billion to $12.5 billion. At the same time, the company’s earnings per share guidance was cut to $1.78 to $1.85 per share from $1.87 to $1.97 per share.

“We expect elevated cost inflation to continue, primarily related to operations, logistics and inputs,” Snee said. “As a result, we are revising our guidance earnings range for the full year.” We believe most of the escalated cost pressures we are currently experiencing are transitory and are likely to subside over the coming quarters. We will continue to leverage our balanced business model and experienced management team as we navigate these challenging business conditions.”

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