US food group Hormel Foods has said it expects an increased focus on its international business to be a key driver of faster growth for the company heading into fiscal 2014.
Speaking at the Barclays Back to School conference yesterday (5 September), Hormel CEO Jeff Ettinger said the group will be focusing on driving sales outside of the US.
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In its recent third-quarter results, Hormel reported a 34% increase in profit for its international division, and 31% growth in sales. The growth was primarily driven by stronger exports of its Spam family of products and fresh pork, as well as an improved performance by its China operations. The addition of the Skippy brand, which it acquired from Unilever earlier this year, also boosted results.
Ettinger told analysts Hormel has been increasing its attentions on expanding its presence outside the US since 2005, but outlined plans to up its focus further heading into the remained of its fiscal year and into 2014.
“We’ve always been, when you look at us versus our competitors, quite small in terms of our overall business outside of the US, and we’re still not totally where we’d like to be. But if you look at the far right in terms of growth and earnings, really we’ve had some really significant results as we’ve quintupled the segment earnings.”
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In 2005, Hormel’s international segment accounted for $10m of group sales. This reached $50m in 2012 and Ettinger says Hormel continues to accelerate this growth.
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By GlobalData“The focus areas over the years have really been two-fold. There’s been the Spam brand outside the US – we already had very strong markets in Korea and the Philippines – and we’ve been able to expand our presence in those markets and then we’ve been introducing the item into mainland Japan and in the last couple of years into China as well.”
Hormel’s fresh pork division, Ettinger said, had been less of a “big scale player” in terms of export. Instead, the company has chosen to create products for “certain targeted and end-user customers”, which the CEO says have been customised to appeal to local tastes. “We’ve had good success in doing that.”
Building on its international success to date, Ettinger says Hormel is targeting hitting “a higher number” than its 2012 $50m sales in 2013. To do this, the CEO says the focus for the group’s international teams will be on driving growth in China with the Skippy and Spam brands, as well as its pork products.
“The initial emphasis has been in pork and Spam and [the international team] really are in a position right now where not only those two areas are going to experience nice growth but they have two new drivers to be able to accelerate that growth going forward.”
The first, Ettinger suggests, will follow the final approval from Chinese authorities for the ownership of the Skippy facility.
“Our China team has really now gotten to the point where we’ve reached critical mass in that marketplace, that we are profitable and we have a solid experienced team in place that’s ready to be able to handle more business. Our China business on a standalone basis, prior to Skippy is approaching about $100m in sales and the Skippy business will increase this by nearly $50m heading into next year.
“[Following approval], we’re hoping to be able to turn our international team loose on that brand heading into 2014. One of the areas they are already poised and ready to do that in really relates to the sales side in terms of being able to utilise the extra amounts of markets and distribution that was already in place and be able to combine that with the work we’ve been doing in the marketplace with Spam and accelerating with both items as they growth within the market in China.”
Hormel last month recorded “solid” earnings and sales in its third quarter and reiterated its full-year guidance. The US group firm saw earnings climb 2% to $113.6m in the three months ended 28 July and sales grow 8% to $2.2bn.
Ettinger told analysts at the conference yesterday that the group’s “long-term articulated goal” has been to grow revenues at 5% per year and earnings at 10%. He said Hormel is “pretty much on that”.
Hormel, however, reaffirmed its earnings guidance at its third-quarter results, of $1.88 to $1.96, which Ettinger said yesterday was “a little bit lower than our 10% average”. This, he said had been prompted by volatile grain markets.
“It’s hard to tell at this stage for sure what will happen next year but in general it looks like some of these macro trends that have been headwinds for the business may be our tailwinds heading into fiscal 2014. We continue to maintain that long-term growth.”
Nonetheless, Ettinger was upbeat about the group’s growth prospects, and said that, as well as international growth, innovation will be one of its biggest growth drivers going forward.
“The team is still very busy building new platforms … The Mexican category continues to be an important one for us when we look at our growth going forward. All told, if you look at all the different franchises we have within MegaMex Foods, we’re going to be approaching around $600m in sales [in 2013], so this is a healthy, significant scale area with lots of room to run.”
Ettinger said Horme’s share within the Mexican category is in the 6-7% share range. “We think we have the broadest array of offerings, both authentic and mainstream items, but we think there is also share opportunities to grow within this area.”
In addition, Ettinger said Hormel will be launching a campaign for Skippy, which will include television advertising, its first for “many years”.
“We’re really looking at the potential of marketing and advertising for that brand. We also want to turn lose that spirit of innovation to this category and right now our Skippy line is peanut butter in a jar and we really believe there are opportunities to use it in other forms.”
The firm’s Jenni-O-Turkey Stores brand will also be a receive attention in terms of branding and new innovation, Ettinger told analysts. “The business, we think, is also poised to benefit next year from improving macro conditions … particularly on the grain side.”
Summing up, Ettinger said: “Clearly, Hormel is a strong cash flow generator. We were able to pay for the Skippy deal with cash this year and we’re already back to a positive cash position. We sit here today with zero net debt. We’ve been pretty consistent at delivering against our goals. If the past is any indicator of our future success we certainly intend to try and make it so.”
