Hormel Foods Corp.'s profit slid in its fourth quarter as consumers bought fewer Jennie-O turkey and other refrigerated food products.
Austin-based Hormel reported sales of $3.3 billion, down 5%, for the quarter ending Oct. 30, missing Wall Street's estimate by $100 million. Its profit of $279.9 million for the quarter was down less than 1% from the same period a year ago.
Bird flu contributed to a 14.7% sales decline in its Jennie-O unit during the fourth quarter.
"We expect a recovery in turkey volumes in the second half of the year," Chief Executive Jim Snee said about the year ahead.
Turkey profits will likely be flat in 2023, Snee said, adding, "There's just so many variables there." The rising cost of animal feed is chief among those variables.
And while Hormel's 2022 was strong as a whole — with sales rising 9.4% to $12.5 billion — and the company saw the second-largest profit in its 131-year history for its fiscal 2022, management's muted outlook for its fiscal 2023 disappointed investors.
The company expects net sales to fall in the $12.6 billion to $12.9 billion range, a modest 1% to 3% increase over 2022's results and lower than analysts expected.
The company's stock closed down 2.5% for the day, underperforming the broader market.
Brittany Quatrochi, consumer staples analyst for Edward Jones, expressed caution for the company's year ahead.
"We are taking a wait-and-see view on the recent Planters acquisition because we believe that it has heavy competition from store brands and that the brand itself needs a great deal of reinvestment. Additionally, volatile hog prices, as well as increasing feed, labor and transportation costs, have weighed on earnings" Quatrochi wrote in a research note on the results.
Hormel plans to spend 25% more on capital expenditures in 2023.
For the quarter, Declining sales during the quarter in turkey and refrigerated products were offset by growth in sales for grocery products. Sales rose 3.2% in its grocery division driven by "strong demand" for Skippy peanut butter.
Food service sales were up 20% for the year. The company's well-known Spam products recorded their eighth-consecutive year of record growth.
In August, the company announced reorganizing its operations into three business segments — retail, food service and international — down from four previously. The company began operating under the new model on Oct. 31.
Snee said that next year's growth will be coming from its food service and international businesses.
Looking to possible mergers and acquisitions Snee said, "We are still very interested in international opportunities."