Profits for Jennie-O Turkey Store, which idled three plants this spring in response to the COVID-19 pandemic, dropped nearly 67% in the third quarter of fiscal year 2020 when compared to the third quarter of 2019.
In reporting its financial results for the quarter on August 25, Jennie-O parent company Hormel Foods noted that while the Jennie-O Turkey Store segment experienced higher retail sales during the quarter, those increases did not offset the decrease in foodservice, commodity and whole-bird sales. The company’s sales during the quarter dropped 4%, while its volume dropped 9.4%.
Also challenging the profits were higher manufacturing and live production costs attributed to the ongoing pauses in production at the three plants on the vertically integrated supply chain. The business also absorbed incremental costs related to the COVID-19 pandemic.
Two of plants that suspended production were in Willmar, Minnesota, while the other was in Melrose, Minnesota.
During a quarterly earnings call held on August 25, one analyst asked if Jennie-O was past the pauses in production, or if it is still an ongoing headwind for Jennie-O Turkey Store.
Jim Sheehan, chief financial officer of Hormel Foods, noted that there had been no production pauses since early stages of the third quarter, and the company continues to bring laborers into the plants.
But Sheehan explained that with a fully integrated system, when plants are not operating, turkeys are on the farms longer, which can mean additional production costs such as for feed.
Sheehan also pointed out the benefits of regained distribution of Jennie-O Turkey Store products that occurred prior to the pandemic. Some distribution had earlier been lost over safety concerns related to two Salmonella-related recalls in 2018.
“We saw the benefits of the distribution that we had regained pre-COVID-19. Now, we understand the impact of consumers going and eating at home more, but obviously, we had to be on a shelf for them to be able to find us,” said Sheehan.
Sheehan also addressed the losses of foodservice business, but he added that foodservice sales appear to be rebounding, especially as classes resume at schools.
“We did have a negative impact on our foodservice business, especially early in the third quarter. Like our Hormel foodservice business, we’ve seen some recovery. The Jennie-O Turkey Store foodservice business is a little more skewed to schools and they have the impact of K-12. We’re trying to understand how that plays out this semester,” said Sheehan.
“We feel good about the retail side, we got to have recovery in the food service side, but everything that we put in place pre-COVID is playing out and that’s why we are optimistic about the business heading into the future.”
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