Hormel Foods Corp. is still taking a beating from America's oversupply of turkeys, but executives say the end is in sight.
The Austin, Minn.-based foodmaker reported record sales and record profit Thursday, but still missed analysts' expectations for its second quarter ending April 29.
Chief Executive Jim Snee said recent acquisitions, like deli meat brands Fontanini and Columbus, helped bolster the numbers as Hormel navigates volatile hog prices and a national shortage of freight trucks.
Hormel's profit rose nearly 13 percent to $237.4 million, or 44 cents a share, for the quarter. Wall Street consensus predicted about a penny more.
Refrigerated foods — the company's largest business unit with brands like Hormel Natural Choice lunch meats, Hormel Bacon 1 and Hormel pepperoni — reached a new sales record, up 14 percent from a year ago.
The Natural Choice brand has been gaining retail market share since it was launched in 2016, Snee said, citing consumers' growing interest in foods perceived as less processed.
Its international business unit was another bright spot for the company with improved sales of Spam and profitability in China, a result of its new pork production plant in Jiaxing. The unit saw comparable sales increase by 22 percent. Looking ahead, the company is bracing for some challenges caused by the United States' precarious trade situation.
"Given the uncertain impact of the tariffs on the pork industry, we are expecting modestly lower sales in our export business," Snee said.
The overproduction of turkeys continues to drag down the company's Jennie-O Turkey Store business, which accounts for about 16 percent of the company's overall sales. The segment's profit fell a whopping 34 percent as excess breast meat is still stockpiled in cold storage and whole bird inventory is still far above last year's levels.
But Snee said there are signs of improvement. The number of birds harvested last quarter dropped a few percentage points and cold-storage levels are beginning to drop. Executives expect this business unit to return to growth in the first half of next year. Hormel's diverse portfolio mix means it rarely has a stellar quarter or an abysmal one. This steadiness tends to help quell investors' concerns in times of macro challenges, like those of today.
A shortage in trucks for shipping is driving up freight costs for a number of industries, including food. Hormel reported a double-digit increase in per-unit freight costs last quarter. This is expected to remain a headwind for Hormel into early next year, Snee said. The company is working with its retail partners to minimize miles driven and delivery frequencies and maximize its loads.
"We are working internally to make sure we are as efficient as we can be," Snee said.
Hormel's grocery products unit, which includes Skippy peanut butter, Spam and Wholly Guacamole, saw sales decline 1 percent, largely due to fallout from a recall of the unit's Muscle Milk product in 2016. A contracted manufacturer had to recall several products two years ago due to a defect in packaging that could lead to product spoilage during transportation.
Hormel recorded $2.3 billion in net sales in the quarter, a 6.5 percent increase over the same period a year ago, and reaffirmed its full-year guidance of $1.81 to $1.95 a share.