Hormel misses on sales as 'whole-bird turkeys' sees significant weakness

By Tomi Kilgore

Stock suffers biggest selloff in 2 years, as as troubles at a Planters facility and lower volumes and pricing for turkeys should keeping pressure on profits

Shares of Hormel Foods Corp. slumped toward their biggest loss in seven months on Thursday, after the parent of food brands including Skippy, Spam, Dinty Moore and Planters, reported fiscal second-quarter sales that fell below forecasts, amid "significant" weakness in whole-bird turkeys.

The company did beat profit expectations for a second straight quarter, the first time its done that in two years.

The stock (HRL) dropped 8.6% toward a three-month low in afternoon trading. That put it on track for the biggest one-day selloff since it fell 9.8% on Oct. 12, 2023.

Chief Executive Jim Snee said on the post-earnings call with analysts that while Jennio-O brand turkey products performed well, that growth was more than offset by significant volume and pricing declines for whole-bird turkeys.

"We expect this business to remain challenged for the rest of the fiscal year," Snee said, according to an AlphaSense transcript.

He said that what is also expected to impact full-year sales and earnings is an "unplanned production interruption" at a Planters facility in Virginia.

"We discovered a food safety issue in April, which has since been resolved," Snee said.

For the quarter to April 28, net income declined to $189.3 million, or 34 cents a share, from $217.2 million, or 40 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of 38 cents beat the FactSet consensus of 36 cents. The last time Hormel had back-to-back earnings beats was in the first quarter of 2022.

Sales were down 3% to $2.89 billion, below the FactSet consensus of $2.97 billion, as 7% declines in both retail and international sales offset 6% growth in food-service sales.

Within retail, sales were hurt by weakness in the whole-bird turkey market, and by lower sales of convenient meals and proteins. That weakness offset strength in sales of many items, including Hormel Black Label bacon, SPAM products, Applegate meats and Planters snack nuts.

For the food-service business, the company said growth was driven by strength across the bacon, premium prepared proteins and turkey categories.

Products including Hormel Bacon 1 cooked bacon, Austin Blues smoked meats, Cafe H proteins and Corn Nuts corn kernels saw sales growth in the double-digit percentage range, while Jennie-O turkey items also saw "robust" growth.

For international, lower commodity export volumes and lower sales in China offset volume growth in the double-digit percentage range for SPAM luncheon meat and refrigerated exports.

The cost of sales declined more than sales, down 4.1% to $2.38 billion, to push gross margin up one percentage point to 17.5%.

For fiscal 2024, the company raised its guidance range for adjusted EPS to $1.55 to $1.65 from $1.51 to $1.65 but kept its sales outlook intact at $12.2 billion to $12.5 billion.

The stock has has now lost 2.9% year to date, while the Consumer Staples Select Sector SPDR ETF XLP has tacked on 5.9% and the S&P 500 has advanced 10.2%.

-Tomi Kilgore

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05-30-24 1350ET

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