Austin, Minn.-based branded meats and foods producer Hormel Foods Corporation has posted net earnings of US$32.7m for its Q2 ended 27 April 2002, down 22% from US$41.8m year on year.
Q2 earnings per share had also dropped 23% to US$0.23, from US$0.30 in the Q2 2001, and Homel saw Q2 dollar sales of US$955m, down from US$962m year on year. Volume was down 1% versus the comparable Q2 2001.
For H1 2002, net earnings were US$83.1m, compared to US$84.5m for the same period last year. Sales totalled US$1.94bn, up from US$1.85bn in the prior-year H1. Volume was up 2% compared to last year.
Chairman, president and CEO Joel W. Johnson explained blamed the Russian poultry ban for the poor Q2: “The industry faced aggressive retail promotions resulting from the protein oversupply created by the Russian ban on poultry imports. Even though the performances of our Grocery Products reporting segment and the Foodservice and Meat Products business units of the Refrigerated Foods reporting segment were strong, they were not able to offset the effect the Russian ban had on the market.”
“Two of our key growth initiatives, ethnic foods and Hormel HealthLabs, continued to show healthy growth. Jennie-O Turkey Store’s Q2 results were accretive and would have been even better if not for the Russian ban,” Johnson insisted.
“Our long-term procurement agreements had a negative impact on earnings in the Q2 as a result of lower-than-expected live hog markets,” Johnson added. “The excess supply of protein kept live hog market prices below our contract price. Even though low hog prices are generally a net positive for Hormel Foods’ bottom line, retail demand was weak due to the protein oversupply. As a result, the margins were not strong enough to offset the losses on the procurement contracts. These contracts have protected our pork producers through this period of economic pressure.”
“We expect this protein oversupply to cycle through the system in the H2 2002. We remain focused on our long-term growth strategies,” Johnson said, “Our latest initiative is the recently announced intent to form a JV, called Precept Foods, with the Excel Corporation, a subsidiary of Cargill, to nationally market a full line of beef and pork under the HORMEL ALWAYS TENDER brand.”
Q2 dollar sales from the Grocery Products segment increased 7% to US$185.3m versus the Q2 2001. Operating profit was US$26.6m this year and US$22.2m in the comparable period last year. Segment volume increased 4% year on year. Dollar sales in the ethnic category rose 10% led by CARAPELLI olive oil and CHI-CHI’s sauces. Distribution of the segment’s ethnic brands, particularly the full line of HERDEZ Mexican products, grew at major retailers during the quarter. Many of the segment’s core brands, including HORMEL Chunk Meats, HORMEL Chili, STAGG Chili, HORMEL Real Bacon Bits and SPAM® Luncheon Meat reported gains in dollar sales for the quarter. The market shares held by many of these brands increased further within their respective product categories. During the quarter, Hormel Foods introduced HORMEL Real Bacon Bits in shelf-stable pouches, SPAM® Luncheon Meat with Cheese and a selection of CARAPELLI Olive Oils in the 44 oz. size.
Refrigerated Foods dollar sales totalled US$510.9m compared with US$545.7m in the year-ago Q2. Operating profit was US$13m, down 46% from US$24m in the prior-year quarter. Q2 volume was down 6% from 2001, reflecting fewer commodity pork sales. This segment was affected the most by the oversupply of protein. However, the Meat Products, Foodservice and Hormel HealthLabs business units, which report under this segment, posted solid results. Meat Products continued to improve the mix of branded, value-added products. Sales of HORMEL ALWAYS TENDER flavored meats were strong, with volume up 14%. This was the 20th consecutive quarter of double-digit growth for flavored meats. The HORMEL Fully Cooked Entrees saw 8% volume growth as this category continued to expand. Volume at Foodservice rose 2%, reflecting post 9/11 recovery and continued success in selling key brands such as HORMEL ALWAYS TENDER, BREAD READY and AUSTIN BLUES BBQ into that recovering channel. Foodservice also launched HORMEL Hot & Spicy Pepperoni with TABASCO Sauce for pizzas, sandwiches and pasta dishes during the Q2. Hormel HealthLabs, another unit of Refrigerated Foods, continued to build market share through several new contracts both domestically and internationally during the quarter.
Jennie-O Turkey Store
Q2 dollar sales for the Jennie-O Turkey Store segment increased 12% to US$213.6m from a year earlier. Operating profit rose 18% to US$15.7m compared with US$13.2m in the year-ago period. The branded, value-added areas of the business maintained a strong pace of growth during the Q2 and ended the H1 of the year posting solid gains in Retail (up 6%), Foodservice (up 5%) and Deli (up 6%).
The All Others segment’s Q2 sales were US$44.7m, down 14% compared to the same period a year ago, while operating profit increased 12% to US$6m. Q2 export volume rose 2%. Volume in Japan was particularly strong, up 17% for the quarter.