Daily Newsletter

06 September 2023

Daily Newsletter

06 September 2023

Hormel Foods cuts sales guidance as international business stutters

Reducing inventory to more historical levels is also a “top priority” for the company.

Andy Coyne September 04 2023

Hormel Foods is expecting to see no sales growth in full-year 2023 as it tackles inventory issues and a weaker-than-expected performance from the US group’s international business.

Jim Snee, the Spam canned meat and Skippy peanut butter brands owner’s CEO, told analysts on Friday (1 September) “the operating environment domestically and abroad continues to be dynamic and we anticipate consumers and operators [will] remain highly intentional in their spending”.

In June, Hormel Foods defended moves to up prices but Snee told analysts its international business “remained challenged” during the third quarter. The company, he explained, had seen some elasticity in its international Spam business, primarily in the Philippines.

“That’s a sizeable legacy market and we’ve seen significant pricing activity over the last several years but with that came some higher-than-expected elasticities,” he said.

Snee also pointed to a weaker-than-anticipated performance in China.

“We had talked about an inflection point in China and we haven’t seen that, especially on our retail business,” he said.

Hormel Foods has also struggled to control inventory levels, although Snee suggested the picture is improving.

“Reducing inventory to more historical levels remains a top priority for the company. Our actions to rectify the inefficiencies caused by elevated inventory are working, demonstrated by a sequential reduction in dollars of both finished goods and total inventory,” he said.

“The value of finished goods inventory ended the quarter at its lowest level since the same time last year, representing meaningful improvement. We expect further declines in the fourth quarter and also plan to achieve our day sales and inventory target by the end of the year.”

Hormel Foods now expects full-year 2023 sales growth to be, at best, flat, or, at worst, down 4%. The company’s previous guidance was of 1-3% growth.

Asked by an analyst what the management team can do to improve things given a gloomier outlook than that expressed in the previous quarter, Snee said: “The China piece, the macroeconomic issues, there’s a lot of moving pieces there. We’re continuing to work on retail with innovation, new distribution, but we need to see that accelerate.”

Snee said the company is seeing some “heightened challenges” across the retail channel. “I think we can see what categories have done in general, promotions are higher as volumes remain soft across a lot of the categories, a lot of the aisles,” he said.

On a more positive note, Snee pointed to broad-based volume growth during the quarter “driven by a recovery in turkey, elevated demand for many of our foodservice items and growth from leading retail brands, including Spam, Black Label, Planters and Hormel pepperoni”.

But he warned “there remains volume pressure in many categories across the store - strong execution this fall and holiday season will be key to delivering our outlook”.

In the three months to 30 July, Hormel Foods recorded net sales of $2.96bn, compared to the $3.03bn achieved a year earlier. Operating income was down 1.5% at $286.7m. Net earnings dipped 0.7% to $218.8m.

Rising disposable income and health consciousness set to drive the healthy snacks market

The global healthy snacks market will be valued at $74.6 billion in 2023 and is expected to grow at a CAGR of 6% by 2030, per GlobalData. Increasing awareness of health and wellness among consumers is the major contributor to the growing demand while a rise in vegan and plant-based diets and rising disposable income, and middle-class expansion are also expected to drive market growth. However, this growth is affected by the challenges posed by high cost of ingredients.

Newsletters by sectors

close

Sign up to the newsletter: In Brief

Your corporate email address *
First name *
Last name *
Company name *
Job title *
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Thank you for subscribing

View all newsletters from across the GlobalData Media network.

close