Hormel Foods 2013 Annual Report Download - page 22

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Segment profit for JOTS increased 25.5 percent for the fourth
quarter and decreased 6.8 percent for the year, compared
to fiscal 2012. Significantly higher grain costs and lower
commodity turkey meat prices during the first half of the year
resulted in lower earnings for fiscal 2013, partially offset by
operational efficiencies and continued momentum from val-
ue-added business. Fourth quarter results were also driven
by continued growth in value-added sales, along with perfor-
mance gains and expense reductions in operations, live pro-
duction and supply chain, which were able to offset the impact
of market conditions as the fiscal year ended. Reductions in
advertising expense also provided lower expenses for this
segment for both the fourth quarter and fiscal year.
Entering fiscal 2014, the value-added businesses for JOTS
will look to expand across several categories with fresh tray
pack items, fresh turkey chubs, and turkey bacon leading the
increase. A renewed focus on the JOTS “Make the Switch”
advertising campaign featuring lean ground turkey is also
expected to enhance sales in fiscal 2014. Lower feed costs,
more favorable commodity markets, and increased val-
ue-added sales will benefit JOTS in 2014. A modest increase
in turkey production is planned in 2014 to support JOTS val-
ue-added product needs.
Specialty Foods: Specialty Foods net sales decreased 14.1
percent for the fiscal 2013 fourth quarter and increased
0.9 percent for the year compared to fiscal 2012. Tonnage
decreased 8.3 percent for the quarter and 2.0 percent for the
year, compared to prior year results. Sales declines at DCB
drove the top-line decreases for both the quarter and fiscal
year, due to the expiration of the agreement allowing DCB to
sell certain sugar substitutes in foodservice trade channels.
Softer sugar and liquid portion sales also contributed to the
year-over-year decline. CFI experienced sales declines in the
fourth quarter in the nutritional category, which was partially
offset by higher ready-to-drink sales. For the fiscal year,
ready-to-drink and nutritional sales drove the year-over-year
sales increase. HSP posted sales gains in canned meats in the
fourth quarter and fiscal year.
Specialty Foods segment profit decreased 33.7 percent for
the fourth quarter and increased 7.0 percent for the year
compared to fiscal 2012. Declines in the fourth quarter were
driven by the expiration of the sugar substitute agreement
noted above. High protein raw material costs negatively
impacted results in the fourth quarter and fiscal year. The
favorable results for the fiscal year were driven by efforts to
diversify the customer base and a favorable product mix for
CFI, improved margins in Hormel Health Labs, and stronger
ingredient sales for HSP.
Looking forward to fiscal 2014, the Specialty Foods segment
will likely register sales and profit declines as it experiences
continued higher raw material costs and refocuses following
the expiration of its sugar substitute contract.
2013 impacted volume comparisons. Lower sales of commod-
ity fresh pork items contributed to top-line declines in the first
half of fiscal 2013, as a reduction in harvest levels was taken
to limit the Company’s exposure to unfavorable pork operat-
ing margins. However, top-line results strengthened during
the second half of the year and solid net sales gains across
several key value-added product lines were able to offset the
decline in fresh pork sales for the fourth quarter.
Several value-added product lines within Refrigerated Foods
experienced notable growth during fiscal 2013. The Meat
Products business unit had a solid performance throughout
fiscal 2013 for Hormel® pepperoni, Hormel® Natural Choice®
deli meats, and Lloyd’s® ribs in the retail channel. The new
Hormel® REV® wraps enjoyed broad consumer acceptance,
driven in part by a national advertising campaign which began
in late July. Within the Foodservice business unit, sales gains
for fiscal 2013 were generated by several value-added prod-
ucts, led by sales of Hormel® Natural Choice® deli meats and
Hormel® Fire Braised™ meats.
Segment profit for Refrigerated Foods increased 29.9 percent
in the fourth quarter and 1.8 percent for the year, compared
to fiscal 2012. Pork operating margins in the fourth quarter
improved compared to last year’s challenging operating envi-
ronment, offsetting unseasonably high hog costs. Additionally,
retail bacon pricing actions taken during the third quarter
drove improved margins toward the end of fiscal 2013.
Entering fiscal 2014, the Company expects more normal-
ized pork operating margins and continued growth in the
Refrigerated Foods value-added product lines. However, hog
costs may potentially be volatile later in the year due to con-
cerns in the marketplace about the Porcine Epidemic Diarrhea
Virus (PEDV) affecting industry supply. The Company intends
to maintain hog harvest levels flat with fiscal 2013 levels, but
will monitor the impact of hog prices as the year progresses.
Ongoing new product activity, including reformulation and
packaging updates of the Hormel® Country Crock® side dishes
and continued distribution of Hormel® REV® wraps should
enhance sales for this segment entering the new fiscal year.
Jennie-O Turkey Store: Jennie-O Turkey Store (JOTS) net
sales for the fiscal 2013 fourth quarter and year increased
7.1 percent and 3.4 percent, respectively, compared to fiscal
2012. Tonnage increased 7.8 percent for the fourth quarter
and 1.3 percent for the year, compared to prior year results.
JOTS value-added products continued to deliver sales gains
throughout the fourth quarter and fiscal year. Retail sales of
Jennie-O Turkey Store® fresh turkey chubs, turkey breakfast
sausage, and turkey bacon were robust, while Jennie-O
Turkey Store® fresh turkey tray pack sales were down during
the fourth quarter. Total harvest volume increased during
the fourth quarter compared to fiscal 2012, after intentional
reductions were taken earlier in the year to reduce the seg-
ment’s exposure to weak commodity meat pricing.