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May 23, 2019

Hormel cuts earnings outlook as African swine fever starts to bite

Hormel Foods has cut its full-year sales and earnings guidance amid the outbreak of African swine fever in China. 

By Dean Best

Hormel Foods has cut its full-year sales and earnings guidance amid the outbreak of African swine fever in China which started to impact the US group’s results in the second quarter.

Despite what the Spam canned meat owner described as “record” second-quarter sales of US$2.3bn, the New York-listed firm lowered its annual outlook to a range of $9.5bn to $10bn, from $9.7bn to $10.2bn. Its earnings per share guidance was also cut, from $1.77-$1.91 to $1.71-$1.85.

President and chief executive Jim Snee said in a statement today (23 May): “In spite of record sales, second-quarter earnings did not meet our expectations. African swine fever in China started to impact global hog and pork markets this quarter, which led to rapidly increasing input costs. In response, we have announced pricing actions across our branded value-added portfolio in the Grocery Products, Refrigerated Foods and International segments.”

In other results, pre-tax profits climbed 7% to $318m with net earnings coming in at $282m and EPS at 52 cents for the three months ended 28 April. Hormel reported an operating margin of 13.3%, compared to 12.9% a year earlier.

Hormel added: “The company’s revised fiscal 2019 earnings guidance range is based on the input cost increases experienced in the second quarter and a forecast for volatile domestic pork prices in the second half of fiscal 2019. The company has a proven ability to operate in elevated market conditions but expects short-term margin compression as branded value-added pricing actions lag input cost increases.”  

Snee also reiterated that Hormel is on the look out for acquisitions and also plans to invest in its Jennie-O turkey brand to “regain retail distribution” after the category posted flat second-quarter sales, while profits for that part of the business dropped 45%. Volumes rose 2%.  

Hormel bought the US-based deli meat and salami producer Columbus Manufacturing in 2017 for $850m, and said today it completed the repayment of the remaining $375m in debt related to the acquisition. 

Earlier this year, the company sold CytoSport to PepsiCo for an undisclosed sum, giving Hormel year-to-date cash flows of $366m. CytoSport produces health and wellness products such as snack bars, shakes and powders under the brand names Muscle Milk and Evolve.   

Snee added. “We will use our strong balance sheet to continue to grow our company through disciplined and strategic investments, including acquisitions and capacity expansion projects.”

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