Hormel leaning on cost cuts, price hikes to boost profits next year

Hormel Foods has struggled to find its rhythm as intense inflation and strained consumers make its bacon, turkey and Planters nuts less profitable.

Yet after several years of disappointing earnings, the company is now “approaching an inflection point,” wrote JPMorgan analyst Thomas Palmer.

Interim CEO Jeff Ettinger agreed.

“We’re very optimistic, frankly,” he said Thursday.

The Austin, Minn.-based Spam and Skippy manufacturer has kept sales growing — with a 1.6% jump in the past year — amid a broad slowdown in the food industry.

But with record prices for beef, disruptions to turkey supplies and volatile pork and nut prices, profits have not kept pace.

Hormel leaders made it clear Thursday that will change in the next year with an “intentionally ambitious” outlook, as Ettinger put it, that also leaves some room for unknowns in commodity prices and consumer belt-tightening. Sales are expected to grow 1% to 4%.

Analysts shared the optimism, with Max Gumport at BNP Paribas calling the earnings forecast “attractive and prudent.” Rupesh Parikh at Oppenheimer wrote that it’s “much better than feared,” given recent setbacks.

A combination of cost savings and price hikes should combine to boost operating income as much as 10% next year, with a low-end estimate of 4%.

Hormel recently cut 250 jobs — 9% of its corporate and sales staff — joining peers across the food industry in restructuring. That’s meant to free up as much as $75 million for advertising and other needs to boost the bottom line.

“Some of the changes we’ve made in our company have allowed us to invest even more in things that will help us connect better with the consumer and move forward aggressively,” Ghingo said.

Prices are also rising for a range of products to match increased costs, company leaders said. The risk is pushing too far and losing more consumers, who are already cutting back on food to combat high prices across the economy.

“The hiatus is over,” Ettinger said.

Hormel will look to boost its “protein-centric” portfolio and cut the elements that no longer fit. The company recently discontinued its private-label snack nuts business and sold a majority stake in the Justin’s nut butter brand.

In the fourth fiscal quarter that ended in October, Hormel finished with a $56 million loss largely tied to a write-down of its minority stake in Indonesia’s Garudafood and the retail snack nuts business.

On an adjusted basis, earnings came in just above analyst expectations even as a fire at a Skippy peanut butter plant in Arkansas and a chicken recall dragged on the bottom line.

An influx of bird flu again knocked out many Jennie-O Turkey Store growers; in Minnesota alone, the virus or culling to prevent the spread of it killed more than 700,000 turkeys since September.

Hormel’s stock price rose nearly 4% Thursday to close at $24.16. It’s down 23% since the start of the year.