Hormel Foods on Wednesday delivered disappointing earnings guidance for 2023, citing a higher pension expense and feed costs for its turkey business, which saw a 30% decline in volume in the last half of 2022, largely due to the re-emergence this fall of highly pathogenic avian influenza (HPAI).
“We expect to operate in a volatile, complex and high-cost environment again in fiscal 2023,” Jim Snee, Hormel’s chief executive, said in a statement.
The Austin, Minn.-based processor projected earnings per share in a range of $1.83 to $1.93, below the consensus estimate of $2.00.
Hormel reported sales of $12.5 billion in fiscal 2022, with net organic sales up 6% from the year-ago period. It reported operating income of $1.3 billion, up 13% compared to adjusted operating income of $1.2 billion last year.
In the fourth quarter, the company reported sales of $3.3 billion, with organic sales up 2% excluding the impact of an additional week last year. Its operating income came to $367 million, up 3% from the year-ago quarter.
Hormel spent $279 million on capital projects in 2022, and plans to spend another $350 million next year on technology and automation to increase production. Increased Spam capacity will come online in the early part of next year, while an expansion in China will become operational in 2024, Snee told analysts in an earnings call.
HPAI is expected to reduce turkey production volume through at least the first half of 2023. “There’s a lot of uncertainty as we think about the JOTS (Jennie-O Turkey Store) business going forward,” said Snee. Hormel had previously expected a return to more normalized levels in the first quarter of 2023, and “now we’re back to the latter half of the year,” the CEO said. HPAI is the “biggest unknown for our sales outlook in 2023,” Snee said.
Hormel expects its international business to be a significant driver of future growth after a challenging 2022. “We are still very interested in international opportunities to leverage what we’ve built,” said Snee, who listed the Asia Pacific, China and Brazil as key areas of focus for potential acquisitions by the company, with its 2022 cash flow of $1.1 billion.
