Sales for Hormel’s Retail business, which includes iconic brands such as SPAM and Skippy, fell 1.7% to $1.28bn in the third-quarter from $.192bn the year before, contributing to an overall 2.3% decline in sales for the business to $2.96bn from $3.03bn last year, the company revealed yesterday.
In response, the company now expects its full-year sales outlook and revenue to be flat at best or potentially fall as much as 4%. This dramatic shift from the company’s earlier expectations of a 1% to 3% increase in full year sales prompted some analysts to ask how third-quarter results went so far askew from expectations.
“If we go back to the first quarter, obviously, there was a lot of inventory issues, too much production, you had to work through. You took a hit and you laid the ground as how the rest of the year expected to be. Second quarter [was] very much in line with everything you talked about,” Barclays analyst Ben Theurer reflected during the company’s third-quarter earnings call.
But, he added, the third quarter appears to be “sidetracked” and the commentary delivered by the company now is "very different from the commentary we got just about three months ago when you actually expected in the fourth quarter to see most of the growth.”
Contracting consumer spending prompts promotions
CEO Jim Snee attributed the reversal in large part to a weaker than expected international business and a slower than expected recovery in turkey sales after losses related to the avian flu last year. But he also acknowledged increased competition at retail and promotion pressure to maintain market share.
“We are assuming increased promotional activity this fall in the retail channel as consumer demand moderates to more historical levels and … we also expect an impact from resumed student loan payments, which could pressure overall spending in the US,” he said.
He explained that promotions are higher across categories as volumes soften, but “we’re holding our share in the marketplace. The execution at the sales level is actually really, really good. But we know that’s going to continue to be an area that’s challenged.”
Planters' success could provide roadmap for growth across brands
He pointed to gains in the company’s Planters business as a positive example of growth despite changes to the competitive environment.
“For the quarter, retail shipments of Planters snack and nuts and Corn Nuts varieties were up 5% and 24% respectively. Retail data show dollar consumption and share improving sequentially for the last 52-, 26- and 13-week periods… More recent data show Planters’ volume and dollar shares have inflected into positive territory,” he said.
He attributed this success in part to innovation within the brand, including the launch of flavored cashews, which are overindexing with younger consumers, and are supported by strong advertising as well as limited time offerings.
Planters also has benefited from a price-pack architecture study the company conducted in the first half of the year, added executive vice president of retail Deanna Brady.
“The team is out working with retailers to help them think about the category itself and the set and that price pack architecture work is helping us have really fruitful, insightful and analytical conversations with our retailers about how we grow together and how we can both meet the consumer with products that are going to be relevant and provide category growth,” she said.
She added that promotions and price point alone are not enough for long term success. Rather, she said, “we need to make sure that we are advertising in place as well. We need to make sure that we have innovation. So, I point again to the Planters example where we have innovation coupled with advertising and promotion in place and its working.”