Bacon prices are down, and so is Hormel's profit

Shoppers brought home 13% more Black Label bacon from Hormel Foods this summer than they did a year ago.

But since bacon prices have been falling all year after hitting a record high this past October, per federal inflation data, that didn't translate to Hormel also bringing home more (metaphorical) bacon.

The company's profits slipped 25% in its most recent quarter, and the owner of Spam, Skippy and Planters has lowered its financial forecast for the rest of the 2023.

"[It] has certainly been a challenging year," Hormel CEO Jim Snee told analysts on a conference call Thursday morning.

The Austin, Minn.-based food company, which owns Jennie-O Turkey Store, is also struggling with turkey as prices dip.

While the impacts of 2022's bird flu outbreak have faded, Hormel has "unfortunately lost some birds" because of hot weather this summer, Snee said, which could affect sales in the run-up to Thanksgiving.

"The team is heavily focused on regaining distribution of our value-added Jennie-O products and managing turkey supply through the current recovery period and upcoming holiday season," he said.

As the company experiences "raw material commodity deflation" — lower input prices — Hormel is shipping more pounds of product but seeing sales decline as the company must lower the prices consumers pay.

That reverses a years-long trend in packaged-food sales. Price increases had led to higher sales, but fewer products sold at food manufacturers around the country.

Snee said consumer demand is "normalizing" after pandemic-era supply chain issues, intense demand at grocery stores and the historic levels of inflation that followed.

"We are optimistic about what the future holds, but clearly we've got some of these short-term issues that we're addressing," Snee said. "Our Planters business is definitely going in the right direction."

Snee said the brand has rolled out several new flavors, boosted advertising and is appearing on more retail shelves.

Hormel missed expectations for the company's third fiscal quarter, which ended in July. The $162 million profit, or $0.40 per share, came in below Wall Street's target of $0.41 per share.

Hormel reported sales declines across its retail, food service and international segments even as it sold more pounds of food overall. Sales were down 2% from last summer, falling just short of $3 billion.

Snee blamed prices, supply chain disruptions, weak demand in China and a recent $70 million arbitration ruling.

That ruling involved an "isolated commercial dispute" with an unidentified third party, according to federal securities filings.

In China, Snee said, "We thought there'd be an inflection point there, and we were wrong."

China is a key market for Hormel's international ambitions, but the economy there has been slow to rebound from its last pandemic lockdown late last year.

Hormel has also built up inventory, both domestically and overseas, more than 50% higher than its historical norm. That hurt the company's ability to take advantage of lower meat prices and other inputs as inflation has cooled.

For the rest of the year, Hormel now forecasts sales to decline as much as 4% or remain flat compared to 2022.

The company's stock was down nearly 3% on Thursday to close at $38.59.

Unionized Hormel plant employees plan to march in Austin on Labor Day to draw attention to ongoing contract negotiations. The current contract expires Sept. 10.

"Workers are standing together for industry leading wages, increased job safety and better benefits," UFCW Local 663 said.