Just before Thanksgiving, Hormel Foods Corp. is giving thanks that its turkey business is back.
Hormel’s Jennie-O Turkey Store business grew volume, sales and profit last quarter for the first time since early 2016, the company said Tuesday.
The business, which is the nation’s second-largest turkey brand, had struggled over the last few years. Jennie-O recently won back space in some key retailers that had cut their distribution following two recalls of ground turkey before Thanksgiving and Christmas last year. “We feel [Jennie-O] has so much momentum going into 2020,” Jim Snee, chief executive of Austin, Minn.-based Hormel, said. “The tide has now changed.”
Before the 2018 ground turkey recalls, the Willmar-based Jennie-O brand endured the effects of an avian flu outbreak in 2015. That health scare led many growers to overcompensate for their flock losses, creating a market oversupply that depressed prices.
Those fundamentals are starting to stabilize. For the first time in years, whole-bird and breast meat storage levels, as well as the number of baby turkeys being raised for slaughter, are down. That means Jennie-O doesn’t have to slash prices just to move its inventory.
But perhaps more importantly, Hormel won back some retail customers. From roughly Thanksgiving 2017 to spring 2019, the entire U.S. turkey industry grappled with a drawn-out investigation into a Salmonella Reading outbreak that sickened more than 350 people in 42 states and resulted in one death. The drug-resistant strain was found throughout the supply chain.
Despite the diffuse and widespread nature of the outbreak — with the Centers for Disease Control and Prevention and the U.S. Department of Agriculture identifying 38 slaughter and processing facilities with tainted product — Jennie-O was the only brand to issue a recall of raw turkey products sold for human consumption and took the biggest financial hit as a result.
Somehow, products from other identified facilities, which the USDA did not publicly name, did not make it to the marketplace or didn’t rise to the level of a recall.
“There are a lot of things in life that aren’t fair, but it was a numbers game,” Snee said. “When you think about our market share, there was a higher likelihood it would show up in our products in the marketplace.”
Snee stopped short of saying others should have also issued recalls, but said the turkey industry has a responsibility to protect and educate the public.
“The fact is, all food companies have an obligation to make sure their food is safe and this was an opportunity to ramp up our consumer education,” he said. “It’s about standing up as an industry and saying this is an industrywide issue we are working to solve together. And I would’ve expected a bit more support from others in the industry.”
As the lone recall issuer, Hormel’s relationship with its grocery-store partners suffered. “We had two product recalls in a very short period of time and that is frustrating for retailers. We get it. They took action that, honestly, is very appropriate,” Snee said. But consumers’ attitudes about the Jennie-O brand showed no change.
The Jennie-O team did some digging and discovered an important datapoint: Retailers who kept Jennie-O’s ground-turkey products on their shelves saw the entire turkey category perform better than retailers who pulled its products from distribution.
The company’s sales team brought that story to each of its customers, one by one, helping regain some of that lost distribution with some large customers. “Regaining some of that lost distribution is something the team really needed,” Snee said.
Hormel still has many large customers to win back in order to get back to its pre-recall levels, but, Snee said, “we are seeing the right signs.”
On Wednesday, the company is set to announce profit-sharing for the 81st straight year. The average per-employee amount will be a record high, Snee said without disclosing specifics.
The recovery at Jennie-O, which accounts for about 15% of Hormel’s overall sales, was a bright spot in Hormel’s fiscal fourth-quarter results.
Its overall profit fell 2% to $255 million in the three months ended Oct. 27. That amounted to 47 cents a diluted share, beating analysts’ expectations by a penny. Revenue fell 1%.
For the 2020 fiscal year, executives forecast revenue growth of around 4% but little change to per-share profit. They cited ongoing global trade uncertainty, “higher protein prices and further volatility related to the impact from African swine fever.”
That illness has devastated hog farms in China, the world’s largest consumer of pork, and spread to Vietnam and the Koreas. Its effects are rippling through pork prices around the world and reorganizing trade patterns to the detriment of Hormel.