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What’s Wrong with Hormel Foods’ Jennie-O Turkey Segment?

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Apr. 11 2018, Updated 9:31 a.m. ET

Oversupply leads to reduced prices

Hormel Foods’ (HRL) Jennie-O Turkey Store segment continued to see trouble in fiscal 1Q18. The continued oversupply of turkeys resulted in lower prices, which affected the segment’s sales performance. 

The company added that commodity turkey breast markets remained at multiyear lows, and inventories were in excess, which led to a subdued top line performance.

The segment’s sales in fiscal 1Q18 fell 7.2% to $390.6 million as higher sales of Jennie-O lean ground turkey and Jennie-O oven-ready turkey were nullified by reduced whole bird sales. Its volumes fell 3.8% in fiscal 1Q18. The segment contributed 17% to Hormel Foods’ total sales in the quarter. The segment is the third-largest contributor to sales after the Refrigerated Foods and Grocery Products segments.

Increases in freight costs also added to the segment’s troubles. Its profit fell 26.8% to $49.9 million in the quarter due to reduced profits from whole bird and commodity sales, lower harvest volumes, and higher freight charges.

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Bleak outlook

Hormel’s management has pointed out that there continues to be excess inventory in cold storage, which will affect the segment’s fiscal 2018 results. The company has slashed its outlook for the segment, which is likely to witness slower sales recovery as the environment remains challenging and freights costs rise. Earlier, the company had projected a modest decline for the segment.

To improve the performance of the Jennie-O Turkey Store segment, the company is looking to control freight costs and invest a considerable amount of the benefits it’s received from tax reforms in addressing the headwinds the segment faces.

In the next article, we’ll look at Hormel Foods’ earnings performance.

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