Hormel Foods 2014 Annual Report Download - page 22

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of Jennie-O® lean ground turkey chubs and tray pack items
experienced the greatest benefit from the Make The Switch®
advertising campaign that started early in the year featuring
ground turkey tacos. High commodity turkey prices also aided
top-line growth. Total harvest volume increased during the
fourth quarter and fiscal year compared to the prior year.
Segment profit for JOTS increased 45.3 percent for the fourth
quarter and 22.6 percent for the year, compared to fiscal 2013.
Increased value-added volume, improved product mix, stra-
tegic price management, and record commodity pricing drove
the improved segment profit performance compared to a year
ago. The positive comparison to fiscal 2013 reflects lower
overall grain costs and higher commodity turkey meat prices.
Value-added growth benefited from increased advertising
expenses in fiscal 2014 with a renewed focus on the Make The
Switch® advertising campaign. These profit gains offset lower
live production performance and higher fuel expenses from
the extended harsh winter experienced earlier in the year.
Entering fiscal 2015, the Company plans to increase turkey
production modestly to support the value-added businesses
for JOTS, following a year with a slight increase in production
levels. Overall lower feed costs, although volatile, will benefit
JOTS in 2015. The Company anticipates turkey prices to nor-
malize during fiscal 2015, down from extremely high prices
experienced in fiscal 2014. Advertising spend for JOTS more
than doubled in fiscal 2014, with the Make The Switch® adver-
tising campaign noted above. The Company plans to expand
this advertising campaign into new markets in fiscal 2015.
Specialty Foods: Specialty Foods net sales increased 30.6 per-
cent for the fiscal 2014 fourth quarter and decreased 2.7 per-
cent for the year compared to fiscal 2013. Tonnage increased
14.5 percent for the quarter and decreased 4.9 percent for the
year, compared to prior year results. The comparative results
reflect the addition of the newly acquired CytoSport business
beginning in the fourth quarter of fiscal 2014, contributing
$73.5 million of net sales and 32.5 million lbs. to top-line
results. Along with the addition of CytoSport sales, stronger
canned meat sales for HSP led to the improved top-line
performance for the fourth quarter. Sales declines for the full
year were largely driven by the fourth quarter 2013 expiration
of the agreement allowing DCB to sell certain sugar substi-
tutes into foodservice trade channels, in addition to lower
nutritional sales at Century Foods International (CFI). These
declines were partially offset by improved sales of nutritional
products for DCB and stronger canned meat sales for HSP.
Specialty Foods segment profit decreased 13.9 percent for the
fourth quarter and 19.5 percent for the year compared to fiscal
2013. Declines in the fourth quarter were largely driven by
$9.3 million of nonrecurring transaction costs and fair value
adjustments related to the CytoSport acquisition. For the fis-
cal year, the shortfall was primarily driven by the expiration of
the sugar substitute agreement noted above. High protein raw
material costs also negatively impacted results in the fourth
quarter for HSP.
capabilities. Going forward, 100 percent of these sales will be
reported within the top-line results for the Grocery Products
segment. The Company recently announced the closure of its
Grocery Products plant in Stockton, California, and production
from that facility will be moved to more modern facilities
within the Company in the second quarter of fiscal 2015.
Refrigerated Foods: Net sales for the Refrigerated Foods
segment increased 9.4 percent for the fiscal 2014 fourth quar-
ter and increased 9.2 percent for the year compared to fiscal
2013. Tonnage increased 0.6 percent for the fourth quarter
and decreased 0.1 percent for the fiscal year compared to
prior year results. Tonnage remained relatively even with
last year, as the Company successfully managed the reduced
volumes processed through its harvest facilities in the third
quarter due to PEDv in the industry and its effect on raw
material supplies.
Several value-added product lines within Refrigerated Foods
grew during fiscal 2014. Top-line results were driven by dou-
ble-digit sales growth within the foodservice business in both
the fourth quarter and fiscal year. Several value-added prod-
ucts within the foodservice business delivered growth, led by
sales of innovative Hormel® Fire Braised™ meats and Hormel®
Bacon 1™ fully cooked bacon, along with continued robust sales
of Hormel® fully cooked sausages. On the retail side of the
business, improved sales performance of Hormel® Black Label®
bacon and Hormel® REV® wraps, along with the reformulation
and packaging updates of Hormel® side dishes introduced just
under a year ago, led to restored sales growth for the fiscal
year. Additionally, Hormel® Black Label® bacon and Hormel®
party trays delivered sales gains in the fourth quarter.
Segment profit for Refrigerated Foods increased 9.9 percent
in the fourth quarter and 45.3 percent for the year, compared
to fiscal 2013. Unusually high pork operating margins were
a significant driver of the higher results for both the fourth
quarter and year. Strong growth for retail and foodservice
value-added products also boosted margins in fiscal 2014.
Entering fiscal 2015, the Company expects pork operating
margins to normalize as the year progresses. Commodity pork
prices are anticipated to exhibit some volatility with PEDv still
lingering in domestic herds, but not to the degree experienced
in fiscal 2014. Strong growth in the foodservice and retail
businesses is expected to offset these lower margins. The
Company intends to increase pork production levels slightly
over fiscal 2014. In continued support of the value-added
product portfolio, the Company plans to focus advertising
dollars on Hormel® Natural Choice® deli meats and Hormel®
REV® wraps to enhance sales in the upcoming year.
Jennie-O Turkey Store: Jennie-O Turkey Store (JOTS) net
sales for the fiscal 2014 fourth quarter and year increased
10.9 percent and 4.4 percent, respectively, compared to fiscal
2013. Tonnage increased 6.6 percent for the fourth quarter
and 0.1 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