Hormel Foods Corp.’s latest profit fell 19%, slightly more than investors expected, but its sales soared as consumers forced to stay home by the spread of coronavirus stocked up on the company’s bacon, turkey, peanut butter and other products.
The company said its operating expenses surged by $20 million in the February-through-April period, the second quarter of its fiscal year, because of costs related to the virus. Those include higher wages for its hourly paid workers and enhanced safety measures in its plants.
Hormel executives said they expect costs — driven by COVID-19 — to be about $30 million to $40 million above previous expectations for each of the next two quarters.
“We are going to have [personal protective equipment] costs, whether it’s masks, face shields or dividers,” Hormel CEO Jim Snee said in a conference call with analysts. “Those things are going to be there on a permanent basis.”
Hormel’s profit drop in part reflected a difficult comparison against a year-ago period when the Austin, Minn.-based firm experienced gains from the sale of some businesses. Eliminating the effect of that one-time gain, Hormel’s profit fell 8.5% in the latest quarter.
Hormel said it gained market share in stores that were flooded with shoppers in March and April as stay-home orders across the U.S. drove a broad shift in food consumption.
Organic net sales, reflecting products Hormel currently owns, were up 20% in the company’s grocery product segment, led by huge gains for Skippy peanut butter and canned goods like chili and Spam.
“We experienced exceptional growth from really every [grocery] brand,” Snee said. He added that Spam, “a brand that is over 80 years old, is probably more relevant today than it has ever been.”
Sales of Hormel’s Jennie-O turkey products rose 12% in the second quarter, while turkey profits soared 54%. But Jennie-O more recently has been contending with a coronavirus-driven disruption.
In late April, three turkey-processing plants in Minnesota were idled after several workers tested positive for COVID-19. The plants, two in Willmar and one in Melrose, were down for 10 to 18 days.
The virus had a complicated effect on Hormel’s refrigerated-foods segment, which includes its brand-name bacon and many other pork products. Consumer sales soared, but its total organic net revenue was still down 3% and its operating profit dropped 17%.
That’s because the refrigerated business relies more heavily on restaurants and public institutions, where demand plunged as businesses and schools closed.
Still, the worst appears to over as states increasingly open their economies. “We are starting to see orders pick up across our food-service business,” Snee told analysts.
The company said it earned $227.7 million, or 42 cents a share, in the three months ended April 26. The consensus of investment analysts before the report was Hormel would produce a profit of 43 cents a share. A year ago, it earned $282.4 million, or 52 cents a share.
Revenue was $2.42 billion, up 3.3% from $2.34 billion a year ago.
Hormel’s stock closed Thursday down 4.1%.