Hormel Foods on Thursday reaffirmed sales expectations and lowered the high end of its earnings guidance for 2022, citing avian influenza, logistics and transportation challenges and COVID-19 restrictions in China.
The Austin, Minn.-based processor reported record sales of $3.1 billion in the second quarter, up 19% from the year-ago period. Operating income increased by 16% to $335 million as the company navigated what CEO Jim Snee described as “some of the most difficult operating conditions in our more than 130-year history.” After a strong quarter, the Jennie-O Turkey Store business faces significant hurdles due to flock losses from highly pathogenic avian influenza (HPAI), Snee told analysts in a post-earnings call. Hormel in March confirmed HPAI in its supply chain.
Biosecurity measures implemented since the last U.S. outbreak in 2015 have meant Hormel lost 25% fewer birds at company-owned facilities than during the previous event, the executive said.
Hormel is repopulating impacted turkey farms and expects supply volume to improve in the fourth quarter, then return to normal early next year, assuming there are no further outbreaks. “As supply comes back in line we expect strong demand in retail and foodservice,” Snee said.
In addition to Jennie-O’s strong performance, gains in foodservice and refrigerated food helped offset higher freight costs and a decline in grocery products as Hormel paid more for avocados, protein and packaging.
Grocery results should improve as recently negotiated new pricing takes hold in the fourth quarter, or at the end of July. “Everybody is experiencing that broad-based inflation,” Snee said. “But that doesn’t make the conversations any easier.”
The biggest price increases will involve “Spam, because of our protein impacts and packaging costs, and Wholly Guacamole, because of avocado costs,” said Snee, who noted that Skippy peanut butter would be least impacted.
A 2% decline in second-quarter volume was largely due to a reduction in pork supply as Hormel renegotiated its pork supply agreement at the end of last year, said Snee.
Partial plant shutdowns in China pose a risk to earnings growth in the back half of the year, Jacinth Smiley, Hormel’s chief financial officer, told analysts during Thursday’s call. The company’s operations are less efficient due to high turnover and new employees, she added.
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