Hormel snags Sadler’s Smokehouse

Hormel snags Sadler’s Smokehouse

AUSTIN, MINN. — Hormel Foods Corp. has agreed to acquire Sadler’s Smokehouse, Henderson, Texas, for a purchase price of $270 million with a $40 million cash tax benefit. Sadler’s Smokehouse is a smoked meat company and longtime supplier to Hormel Foods.

“Authentic barbecue is on trend and continues to show excellent growth on restaurant menus across the nation,” said James P. Snee, chairman of the board, president and chief executive officer of Hormel Foods Corp. “This acquisition perfectly aligns with our strategic initiative of strengthening our position in food service and gives us another highly differentiated branded product line, similar to what we have with Burke pizza toppings and Fontanini Italian meats and sausages.

“We also see a unique opportunity to further extend the Sadler’s product line into the retail and deli channels. We are excited to welcome the Sadler’s Smokehouse team members to the Hormel Foods family and look forward to their contributions.”

Sadler’s Smokehouse will continue operations at its Henderson facility and will be included in Hormel’s Refrigerated Foods segment. The transaction was structured as an asset sale and was expected to close in March, subject to customary closing conditions.

“Hormel is one of the largest customers of Sadler’s as they produce numerous items for our Austin Blues product line,” said James N. Sheehan, executive vice-president and chief financial officer, during a Feb. 20 conference call with analysts. “Annual sales, excluding Hormel, are approximately $140 million. Sadler’s operating margins are in line with the total company average. We estimate this deal will be neutral to slightly dilutive in 2020 as we plan to make immediate investments into the business and production facility.”

The acquisition was announced the same day Hormel Foods released first-quarter financial results. Net earnings attributable to the company for the quarter ended Jan. 26 totaled $242,872,000, equal to 45c per share on the common stock, which was up slightly from net earnings of $241,425,000, or 45c per share, in the prior-year period. Selling, general and administrative expenses increased year-over-year, while advertising investments declined due to the divestiture of the CytoSport business. Results also reflected a lower effective tax rate and a lower operating margin in the latest period.

Net sales bumped up 1% to $2,384,434,000 from $2,360,355,000 the year before.

“Organic sales growth met our expectations this quarter as three of our four segments delivered volume and sales growth,” Mr. Snee said. “It is encouraging to see Jennie-O Turkey Store deliver a second consecutive quarter of volume, sales and profit growth while continuing to gain back Jennie-O lean ground turkey distribution. We are also seeing the strategic capital and marketing investments lead to strong growth from brands such as SPAM, Hormel Black Label, Fontanini, Hormel Bacon 1 and Hormel Fire Braised.

“The Refrigerated Foods business model performed as anticipated, given the volatile commodity market conditions. Growth was driven by another strong quarter from our food service team and higher commodity profits. Volatile pork and beef trim prices also impacted profitability across many product lines in Grocery Products.”

Management reaffirmed fiscal 2020 sales and earnings guidance. The company expects net sales of $9.50 billion to $10.30 billion and earnings per share of $1.69 to $1.83 for the year, which compares to fiscal 2019 net sales of $9.497 billion and diluted earnings per share of $1.80.

“We have strong fundamentals in Refrigerated Foods and clear momentum at Jennie-O Turkey Store,” Mr. Snee said. “We expect both segments to contribute meaningfully to our growth this year. While many Grocery Products brands such as SPAM, Wholly and Herdez are performing well, we have additional work to do on the Skippy spreads and Hormel chili businesses. Our International team continues to manage through African swine fever, tariffs and the uncertainty caused by the recent outbreak of coronavirus in China. We have started to see a negative impact on our business in China from the coronavirus outbreak, but we are not yet able to forecast the impact for the remainder of the year. For the full year, we expect the International results to be offset by strong performances from Refrigerated Foods and Jennie-O Turkey Store.”