Like a football team realizing it isn't a Super Bowl contender, Hormel Foods is writing off next year as a rebuilding season.
"We expect earnings to decline in the first half of the year," Hormel CEO Jim Snee said Wednesday as he set the stage for 2024 to be "an investment year for the company."
The Austin, Minn.-based maker of Spam, Jennie-O and Planters has been facing higher costs and diminished consumer demand. Those trends are expected to continue, especially as wages and benefits rise for unionized employees that won a new contract this fall.
Snee did not mince words, telling analysts the fiscal year, which ended in October, "did not meet our expectations."
"There is urgency across the organization to improve our business," he said.
Hormel plans to invest $250 million into the business over the next several years to speed growth. The bottom line won't see the full benefit until 2025, Snee said, tempering expectations for a quick turnaround.
"While 2023 didn't play out quite like we had planned, there were a lot of great accomplishments that will set this company up for future success," he said.
Profits fell 30% in the fourth quarter compared to the end of fiscal 2022, even as sales declined just 2%.
For the full fiscal year, Hormel's $793 million profit was 20% below last year's haul. Sales declined 2% to $12.1 billion.
Retail sales, by far the largest part of Hormel's business, suffered from lower overall sales from brands like Planters, Skippy and Columbus Craft Meats.
Deanna Brady, Hormel's head of retail, said after years of "reactive" price increases, the company can be more "proactive" with raising prices in the year ahead. That comes as consumers grow more sensitive to price increases and refuse to buy products beyond a certain point, a phenomenon economists call elasticity.
"It's important that we take those elasticities very seriously, because they are moving and moving quickly," she said.
Hormel's foodservice business was a bright spot and represented nearly half the company's annual profit. Snee said the segment should continue growing next year.
International sales were hurt by continued weak demand in China and low prices for commodities.
Investors sent the company's stock down more than 4% in trading Wednesday. Hormel shares have fallen almost 35% since the start of the year.
- The Jennie-O Turkey Store plant in Barron, Wis., will stop slaughtering turkeys and shift to "value-added production" next year.
- Hormel had "the safest year in the history of our company," Chief Financial Officer Jacinth Smiley said.
- The Justin's brand name recorded a $28 million impairment charge, reflecting a lower value for the natural nut butter Hormel acquired in 2016.