Hormel Foods continues to invest in flagship brands, anticipates $80m-$100m in supply chain disruption costs this year

By Mary Ellen Shoup

- Last updated on GMT

"Our financial results this quarter demonstrate the value of our balanced business model and our team's ability to react to a rapidly changing environment," says Hormel Foods CEO Jim Snee (pictured above).
"Our financial results this quarter demonstrate the value of our balanced business model and our team's ability to react to a rapidly changing environment," says Hormel Foods CEO Jim Snee (pictured above).

Related tags Hormel foods COVID-19 coronavirus Packaging equipment & materials Processing and packaging Innovation Processing equipment & plant design

Hormel Foods saw organic net sales increase 20% for its grocery products (SPAM, SKIPPY, Hormel chili, and Hormel Compleats microwave meals) and registered a 12% rise in net sales for Jennie-O Turkey products offsetting a decline in foodservice sales in Q2 2020 (covering the 13 weeks to April 28).

Total organic net sales for the second quarter were up 6% to $2.4bn, weighed down by sales losses from its foodservice accounts, reported the company.

While the company saw improved performance in its refrigerated foods portfolio from products such as Hormel Black Label bacon, Applegate natural and organic meats, Columbus charcuterie, Hormel pepperoni, and Lloyd's barbeque meats, those gains were more than offset by significantly lower foodservice sales and higher operational costs.

"We continue to excel and gain market share in channels that are open and available to us, namely the retail channel. We know consumers are looking for trusted brands, and we will continue investing in our leading brands such as SPAM, SKIPPY, Jennie-O, Hormel Natural Choice, and Applegate,”​ stated Jim Snee, chairman of the board, president, and CEO of Hormel Foods.

“Even though the COVID-19 pandemic has caused a dramatic shift in consumer behavior, operational disruptions and extreme volatility in raw material markets, we remain financially strong and well-positioned to weather the pandemic,"​ said Snee.

COVID-19 employee safety response

After several closures to a number of its food production facilities​ in April due to COVID-19, the company has implemented enhanced safety procedures which it says “meet or exceed CDC and OSHA guidelines.”

The new measures include include providing personal protective equipment for all production team members, frequent disinfecting of high-touch areas, reconfiguration of common areas and workstations, temperature and wellness screenings, revised shift scheduling, reducing production line speeds, new guidelines on carpooling, more extensive social distancing measures throughout each facility and where possible, providing remote work opportunities and facilitating access to rapid testing for employees.

"Employee safety has been and will continue to be our top priority, and this is why we are committed to making the necessary investments to keep our team members safe,"​ Snee said.

"Our industry-leading effort to enhance safety protections for our team members is complemented by our new awareness initiative, called KEEP COVID OUT!, which reinforces the importance of taking preventive measures at our production facilities and in our communities where we work and live."

The company has also announced over $11m in bonuses to all full- and part-time plant production team members.

Supply chain disruptions

In the second quarter, the company absorbed approximately $20m in incremental supply chain costs primarily related to lower production volumes, employee bonuses, and enhanced safety measures in its production facilities. The company said it expects to absorb another $60m to $80m in the second half of the year with the majority of the increased costs expected to be temporary.

"Our leadership team has extensive experience effectively managing through volatile input cost markets and changes in consumer behavior, but we have always done so with a fully functioning supply chain across the industry,"​ Snee said.

"The COVID-19 pandemic has created industry uncertainty as to whether we will experience further interruptions. Additionally, the foodservice industry is in the very early stages of a recovery, and we are actively monitoring the pace and magnitude of this recovery. As a result of this uncertainty, we are withdrawing our full-year sales and earnings guidance."

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