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Diving overview:
- Hormel Foods executives told analysts on a Feb. 26 first-quarter earnings call that the company faces higher transportation costs due to a difficult freight environment due to limited capacity.
- Interim CFO and Controller Paul Kuehneman said on the call that the capacity shortage was caused by harsh winter weather and industry dynamics. At the end of the quarter, Jan. 20-26, Winter Storm Fern caused a 55% week-over-week decline in shipments across the North American freight network, according to FourKites.
- “Spot rates began to increase as severe winter weather events occurred and driver availability tightened, and this pressure continued into the early part of the second quarter,” Kuehneman said.
Dive Insights:
Hormel Foods has seen unexpected increases in freight and logistics costs as global food brands continue to struggle with rising pork and beef prices.
“As expected, raw material input costs, primarily beef, pork trims and nuts, were headwinds in the first quarter. For context, beef remained under significant inflationary pressures across the industry and pork trims were up 12% compared to last year,” Kuehneman said.
The company has been trying to offset rising raw material prices due to inflationary pressures over the past year.
By 2025, Hormel will Innovation and Modernization Initiatives To ease margin pressure. The initiative, aimed at transforming the supply chain and simplifying the portfolio, has increased the company’s distribution capabilities and optimized manufacturing footprint.
Hormel also raised prices to combat cost pressures as the first wave began in the first quarter. The food manufacturer expects to see bigger gains from the second round of retail price changes implemented early in the fiscal second quarter, according to interim CEO and board member Jeffrey Ettinger.
