AUSTIN, MINN. — Cases of highly pathogenic avian influenza (HPAI) emerging this week in California, Indiana, Minnesota and North Dakota, including in a Hormel Foods Corp. flock, have executives at the company on edge. Outbreaks earlier this year affected the company’s Jennie-O Turkey Store business, and the new cases may have a lasting impact.
“With the positive cases identified earlier this week in our supply chain, we expect the impact from HPAI to reduce production volume in our turkey facilities through at least the end of the first quarter of fiscal year 2023,” said Jacinth Smiley, chief executive officer, during a Sept. 1 conference call to discuss Hormel’s third-quarter results.
Smith said the HPAI outbreaks earlier this year reduced third-quarter turkey volumes 20% and that she expected fourth-quarter volumes to be down 30%.
“Our expectation is as we go into the first quarter of next year, if nothing else happened from an HPAI standpoint, we should be rebuilding our supply there and be in a good spot,” she said.
She added that the current situation is developing, and it is too early to tell what the first-quarter impact may be.
Tight turkey supplies benefited Hormel’s Jennie-O Turkey Store subsidiary during the third quarter. While segment 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 outperformed our profit expectations for the quarter as the team effectively managed limited turkey supply and maximized operational performance, all while working to restore the impacted turkey farms across the supply chain,” said James P. Snee, chairman, president and chief executive officer.
Hormel Foods’ net income for the quarter was $219 million, equal to 40¢ per share on the common stock, up from $177 million, or 32¢ per share, the year prior.
Quarterly sales rose to $3 billion from $2.9 billion the year before.
“We have successfully achieved seven straight quarters of record sales and four consecutive quarters of earnings growth,” Snee said. “In the current environment, this is an especially notable achievement.”
Refrigerated Foods business unit sales rose 2% during the quarter to $1.66 billion and segment profit rose 16% to $177 million.
“Refrigerated Foods delivered double-digit value-added earnings growth on retail and foodservice items, more than offsetting lower commodity profitability,” Snee said.
Segment sales increased due to continued strong results from the company’s foodservice businesses, growth from many retail products, strategic pricing actions across the portfolio and the inclusion of the Planters snack nuts business in the convenience channel, according to the company.
While Grocery Products unit sales rose 25% to $870 million segment profit fell 5% to $77 million.
“Segment profit declined 5% due to the impact from continued inflationary pressures and lower results from MegaMex,” Smith said.
Sales in Hormel’s International & Other unit fell 5% to $181 million and segment profit fell 9% to $25 million. The company attributed the declines to lower sales in China, partially due to the impact of that country’s COVID-19 restrictions.
Management also revised the company’s fiscal 2022 guidance to sales climbing to a range of $12.2 billion to $12.8 billion, up from the previous guidance of $11.67 billion to $12.5 billion. At the same time the company’s earnings per share guidance was lowered to $1.78 to $1.85 per share from $1.87 to $1.97 per share.
“We expect elevated cost inflation to persist, primarily related to operations, logistics and raw material inputs,” Snee said. “As a result, we are revising our full-year earnings guidance range. We view the majority of the escalated cost pressures we are currently absorbing as transient and likely to subside over the coming quarters. We will continue to leverage our balanced business model and experienced management team as we navigate these difficult business conditions.”