US-based Hormel Foods has issued a profit warning amid pressure on its raw-material costs.
The Spam maker has cut its full-year earnings per share forecast to US$1.54 to US$1.58 per share from the previous guidance of US$1.65 to US$1.71.
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The move, announced today (24 August), comes despite the company reporting record EBIT of US$278m for the third quarter of fiscal year 2017. It has blamed the downgrade on high commodity price volatility.
President and CEO Jim Snee said: “We expect continued earnings pressure from higher input costs for key raw materials such as bellies, pork trim, and beef trim.
“While we have communicated price increases in many categories, the increases will not be fully effective until late in the fourth quarter. Jennie-O Turkey Store continues to be adversely affected by unfavourable market conditions, as the industry has not returned to normalised turkey production levels.”
The company – which alongside the profit warning and publication of its third-quarter results announced the US$104m acquisition of a Brazilian meat firm – has revealed mixed fortunes.
The record third-quarter EBIT figure of US$278m is up 1% on the 2016 figure of US$274m but sales of US$2.2bn are down 4%.
Snee said: “We generated record pre-tax earnings this quarter even as we faced record-high input costs for two of our primary raw materials, pork bellies and beef trim.
“Nevertheless the results did not meet our expectations. Our team is working to mitigate the effects of volatile commodity markets through increased pricing, strategic promotional activity, and our on-going innovation efforts.
“Strong earnings growth in grocery products and refrigerated foods was able to offset lower earnings in our other three segments. Specialty foods results are disappointing, primarily caused by a soft quarter for Muscle Milk ready-to-drink protein products. As we anticipated, Jennie-O Turkey Store continues to navigate through unfavourable market conditions in the turkey industry.”
Refrigerated foods saw operating profit up by 15% but sales down by 6% while grocery products saw a 10% uplift in operating profit and a 6% hike in sales.
But Hormel’s speciality foods saw operating profit decline by 14% and sales by 7% while the Jennie-O Turkey Store segment saw operating profit plummet by 20% and sales by 9%.
Looking ahead, Snee said: “We continue to make excellent progress towards our strategic growth initiatives outlined in our 2017 Investor Day.
“The acquisition of Fontanini Italian Meats and Sausages complements our branded foodservice business and provides additional avenues for growth in the foodservice channel as well as much-needed production capacity for our pizza toppings business.
“This morning we also announced the acquisition of the Ceratti brand, a premium value-added meats company in Brazil. This acquisition expands our global presence and is a platform for future acquisitions in South America.”
Snee also pointed to the announcement earlier this month that Hormel had committed more than US$130m to expand production capacity for precooked bacon at its Dold Foods facility in Wichita, Kansas.
