Tuesday, February 28, 2017
Hormel Foods Facing Challenges in 2017
Of the five segments the company lists, three posted earnings growth — refrigerated foods, international and grocery products. However, specialty products were flat, and the Jennie-O turkey store products fell 25 percent.
So, let’s talk turkey. Prices were foul this past year, and expenses were up, as was competition. In a statement to the press, CEO Jim Snee blamed a confluence of factors. “Declining turkey prices, increased expenses, and increased competition pressured (Jennie-O’s) profitability… We can handle any one of these issues during a given quarter or year but all three factors in the same quarter created a difficult operating environment that we did not expect…”
The key word here is “expect” … that’s a truth, but a hard truth. While you should hope for the best, preparing for the worst is a smart strategy. Contingencies should account for all foreseeable problems as well as imagining other potential struggles. It’s easy to play Monday morning quarterback here, but it’s also fair to say that increased costs, more competition and lower prices (due to the competition) are all foreseeable issues. Sure, dealing with them would be tough, but shouldn’t be “unexpected.”
That said, Snee’s guidance did keep his company in the black, despite the slip in one segment. There’s a lot to be said for that, and shareholders should hear it. And, details matter. According to Snee, turkey prices, particularly the popular breast meat, have fallen 60 percent, the lowest point in nearly a decade. That’s a precipitous drop, so it’s not too hard to believe Hormel executives would not see it coming … but they do need to do better. Imagine what they could have done if they prepared for this drop and continued to perform well in other segments? That may well be what’s in store for next year’s report, but only time will tell.
There’s another key here that should be noted, culled from Snee’s comments. Some of the “unexpected” costs incurred had to do with cyber security. This is a “new normal” real-world reality all businesses have to face. There is no limit to the negative potential of cyber warfare and net-based corporate shenanigans. Costs for this kind of protection have become a standard cost of doing business. And those costs have not topped out. As attacks become more aggressive and widespread, the programs and protocols to fight these risks will have to become smarter and better … and more expensive.
Communicating these realities is something all CEOs and CTOs will have to do in the coming years. They will need to speak clearly and concisely, using risk-descriptive language people who are not tech-savvy can understand. This will be a key corporate and PR communications strategy for some time to come.