While volume sales across the board declined 11%, it was the poor performance of its Jennie-O Turkey Store division that drove the decline. This wing saw operating profit drop 29% year-on-year, with volume sales down 6% and value sales down 8%. Its grocery division saw operating profit rise 15% with volume sales up 2%.
Jim Snee, president and chief executive officer, attributed the drop in Jennie-O Turkey Store sales to an oversupply.
“Despite ongoing challenges in the turkey industry, our balanced model allowed us to deliver earnings within 2% of last year’s results. Three segments delivered earnings growth, margin expansion, and adjusted volume and sales growth this quarter.
“Growth in many of our key brands drove excellent results in the Grocery Products and International segments,” Snee said. “Unfavourable market conditions in the turkey industry, caused by an oversupply of turkey, continued to pressure Jennie-O Turkey Store sales and earnings.”
He added that this poor quarter would have a knock-on effect on its full-year results.
“We are maintaining our fiscal 2017 guidance range of $1.65 to $1.71 per share, but expect the results at Jennie-O Turkey Store to push our full-year earnings toward the lower end of this range,” Snee said. “We expect the pressure on Jennie-O Turkey Store to continue for the remainder of the fiscal year, given the oversupply in the turkey industry.
“Even in this challenging commodity environment, our team is working hard to generate earnings growth by providing customers, consumers, and operators with on-trend, innovative value-added products.”
Meanwhile, construction has begun on a new Jennie-O Turkey Store processing plant in Minnesota.
More than $137m will be invested by Hormel Foods in the building and processing equipment to increase production capabilities and plant efficiency.
“This investment shows the company’s commitment to provide the best processing experience for our growers and to meet our customers’ needs,” said Glenn Leitch, president at Jennie-O Turkey Store. “The new equipment will enhance our animal handling practices and the increased automation will improve people safety.”
The new plant is being built in Melrose to replace an existing company plant located in that city, and will have the capacity for increased production, depending on customer demands.
The current plant will remain in operation during the construction process. Once the new plant is finished in early 2019, the existing plant will be partially torn down and the remainder will be used for further value-added products.