Dive Brief:
- Hormel Foods Corp. is making progress in normalizing its inventory levels after multiple quarters of bloated stock, Chairman, President and CEO James Snee told investors last week.
- The CPG slowed manufacturing in areas where supply exceeded demand, "allowing us to better utilize new and available internal capacity," Snee said on the June 1 earnings call.
- Thanks to its operational efforts, Hormel now expects nonproductive inventory levels for days sales to fall back to below 60 days.
Dive Insight:
Hormel is one of many producers still working to normalize stock levels after years of volatility — uncertainty that was still reflected in the company's bloated inventory levels.
Inventory levels compared to the previous quarter were up 1.7%, with mitigation efforts offset by the company's work to restore SKIPPY stock levels. Demand had been outpacing supply for Hormel's peanut butter brand in recent quarters.
The company worked to implement changes to demand and supply planning processes during the quarter as part of its effort to lower inventories, actions which impacted margins during the quarter, Snee noted.
Hormel expects to reap the benefits of greater process control, as well as other supply chain improvements such as lower freight and warehousing expenses, beginning in FY 2024.
Supply is also normalizing in other parts of Hormel's business as turkey supplies return thanks to the fading impact of the bird flu. Hormel's turkey supply was drastically down as a result of bird flu last quarter, with commodity turkey volumes down 80% YoY.
The company is now pivoting back to selling its turkey products, Snee said during the June 1 call.
"We've got our sales teams focused and reengaged on selling turkey. You don't just flip a switch after a year of not having turkey, but they are focused and reengaged," Snee said. "And so that is, call it, new replacement volume, whatever the right term is, that's returning volume on the turkey side of the business."
Others in the food manufacturing space are also finally starting to see stock return to a state of normality.
Kraft Heinz has been focused on supply recovery, with case fill rates in March up by more than 5 percentage points to a little over 95%. Like Hormel, Kraft Heinz is focused on bringing inventories down, after they reached $4 billion at the end of Q1, up 10% YoY.
Conagra, meanwhile, is focused on building back supply levels, with CEO Sean Connolly noting the company's service levels have improved to above 90%.
“We’re moving past discrete supply chain disruptions and continue to make progress on our margin expansion initiatives, such as productivity and value over volume, all within an environment that is normalizing,” the CEO said on the call.
