3 factors hurting Jennie-O Turkey Store’s finances

Jennie-O Turkey Store had a rough first quarter of the 2017 fiscal year, seeing its operating profit decline 25 percent on a year-over-year basis.

Roy Graber Headshot
(Hormel Foods)
(Hormel Foods)

Jennie-O Turkey Store had a rough first quarter of the 2017 fiscal year, seeing its operating profit decline 25 percent on a year-over-year basis.

The subsidiary of Hormel Foods did increase its sales by 13 percent, Hormel Foods CEO Jim Snee said during Hormel’s quarterly earnings call on February 23, but Snee said there were three main factors behind Jennie-O Turkey Store’s lackluster profit.

1. Turkey prices have declined

Snee reported that turkey prices such as breast meat have fallen over 60 percent year-over-year to seven year lows, which were much lower than the company expected. The turkey industry now appears to be in an oversupply situation, and Snee said the company does not foresee any near-term relief on commodity prices in the near future.

2. Higher operating expenses

Jennie-O Turkey Store incurred higher operating expenses, primarily for biosecurity measures in its live production system. The company, Snee said, will continue to make additional investments in its biosecurity initiatives to protect it, should another avian influenza outbreak occur.

3. Competition from other proteins

Competing proteins continue to pressure Jennie-O Turkey Store, in addition to increased competitive pressure. The company experienced this competitive pressure across all three sales divisions; foodservice, retail and deli.

Hormel James Snee

Jim Snee | Hormel Foods

Company remains optimistic

Despite the current struggles, Snee is optimistic that Jennie-O Turkey Store will rebound.

“The team at Jennie-O Turkey Store is taking the appropriate actions to address near-term operating conditions and challenges,” said Snee. “We remain very optimistic about the demand for Jennie-O branded products. We have improved similar turkey commodity cycles before and we always emerge in a stronger position. We will continue to support the brand, deliver innovative new items and invest in the business.”

Hormel Foods financial results

Despite the struggles Jennie-O Turkey Store experienced during the first quarter, Hormel Foods as a whole kept its net earnings flat at $235 million, the same figure it recorded during the first quarter of fiscal year 2016.

Hormel’s operating profit for the Refrigerated Foods segment increased 4 percent, its International and Other segment increased its operating profit by 5 percent, and the Grocery Products operating profit was up 1 percent. The Specialty Foods segment’s operating profit was on par with what it achieved during the first quarter of 2016.

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