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Hormel CEO Jim Snee joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the food supply chain is functioning amid the coronavirus outbreak.
ALEXIS CHRISTOFOROUS: We know that food companies are more essential than ever during this pandemic, and I want to bring in Hormel's CEO Jim Snee now, for the latest on that. Jim, good to see you this morning. And also, congratulations, because a little good news amidst all this-- Goldman Sachs upgraded Hormel today to neutral.
They've got a $45 price target. And I'm reading off their note-- they see a potential uplift to demand as a result of COVID-19. And they also mentioned your company's healthy balance sheet. We know that you've got the iconic Spam brand. Also, you've got Skippy and Applegate, and a lot of others, but what has demand for your products been like in these past few weeks?
JIM SNEE: Well, good morning, Alexis. Thanks-- thanks for having us. The demand across our entire line of retail products has been very, very strong. You know, we've got a really nice balance portfolio. We've got a strong presence in the refrigerated section of retail, with Jennie-O Turkey Store, our Applegate brand that you mentioned, Hormel Pepperoni, and Black Label bacon.
And then, of course, we've got, again, as you mentioned, a very strong presence in center of the storm with iconic brands like SPAM, Skippy, but also on-trend items, like authentic Mexican product, Herdez. But the-- the demand has been very, very strong across our entire retail portfolio.
BRIAN SOZZI: Jim, good to see you here. And, yes, we have the SPAM here in my home office, for sure. Have you seen-- I talked to Target's CEO Brian Cornell the other night. They are seeing some trade down in their business, I suspect, because consumers are worried about their jobs. Have you seen people trading off to, let's say, regular bacon from your Black Label bacon?
JIM SNEE: Yeah, we have not seen that. I mean, really, across our entire portfolio, the demand has been really, really strong. So, you know, we-- we do have a premium line of retail products and Applegate, a leading natural and organic brand. And that product is selling as well as some of our value products. So-- so we haven't necessarily seen that in the-- in the portfolio yet. Probably the biggest shift that we've seen is from food service into retail.
BRIAN SOZZI: And, Jim, I know you have-- Goldman Sachs really highlighted your-- your strong balance sheet. And I know it's one of the hallmarks of your company. Are you looking at M&A? I know it's slowed up a little bit, but-- but Hormel, in many respects, has been built on M&A. Skippy, I could go back a couple of years ago. Is your phone ringing off the hook right now?
JIM SNEE: You know, I wouldn't say it's ringing off the hook, Brian. I would-- I would say that, you know, we're-- we're in the market. I think a lot of companies are just maybe hitting the pause button here, to see what's going to happen. But, as you mentioned, you know, our strong balance sheet has been a hallmark of our company for 129 years.
You know, we've been very thoughtful, very intentional, how we've managed it. You know, we've had a very strong capital allocation process over the years. We've been able to reinvest in our business to support value-added growth. We've been able to provide dividend growth to our shareholders.
You know, we've increased our dividends every year, for well over 50 years. This year is our 11th consecutive year of a double-digit dividend increase. So-- and we're really proud of what we've been able to do with our capital allocation process.
And all of that also supports the M&A that we've been able to do very successfully over the last several years. You know, we've had a $1.5 billion of M&A over the last several years, and we've been able to-- to pay that off, with no debt on our balance sheet.
ALEXIS CHRISTOFOROUS: That's an enviable position for sure, Jim. But, you know, we're seeing company after company slash outlooks for Q2 and onward. Some are saying, there's just not enough clarity for them to even estimate what business is going to look like in the second half of the year. How is COVID-19 impacting your business? Are you actually upping estimates because you're seeing such demand for your products right now?
JIM SNEE: Yeah, I mean, as I mentioned earlier, I mean, we are seeing strong retail demand. And retail makes up about 70% to 75% of our overall business. We do have a strong food service business, which is, you know, 25%, 30% of the organization. You know, we know what's happening around the country with restaurants having to close.
But it's been really rewarding to see the work that our team is doing to work with restaurant operators to help them pivot from having dine-in service to takeout and delivery. So, I mean, it's really-- it's early to-- to say that we're going to call up estimates. What we do know is that the demand has been strong on our retail-- retail business and that our food service team is really doing a great job helping those food service operators pivot to where the business is today.
ALEXIS CHRISTOFOROUS: And, Jim, talk to us about your operations in China right now. We know that China's coming back online. What are you seeing on the ground there?
JIM SNEE: Yeah, so our-- so our operations are back up and running. We were slightly delayed coming out of Chinese New Year, as employees really were, you know, shelter in place in China. But we've been able to get all three facilities back up and running.
Our retail business there continues to be strong. And we're seeing our food service business return as well. So, you know, as-- as the citizens are getting out and about and returning to work, there-- there's a return to normalcy. And so, we're-- we're in a good place in China as well.
BRIAN SOZZI: Jim, do you suspect-- this year, you've been setting record sales of SPAM. I think it may be six years in a row. Do you think this year will be another record because of what we're seeing with a lot of this hoarding and pantry stock-up?
JIM SNEE: Yeah, Brian, I mean, we were off to a great start already with-- with SPAM. You know, this would be our sixth consecutive record year of sales. I think the significant uptick that we're seeing through this crisis puts us well on our way.
You know, but, like I said, even before this uptick, you know, the business-- our SPAM business has just been really, really strong. It's-- it's connecting with consumers, and it's on trend and more relevant than it's ever been.
Our team-- our marketing teams, our brand teams-- have done just a great job, you know, talking to consumers in a way that we've never done before. And really, when you think about it, it's-- it's over an 80-year-old brand, and it's more relevant today than it's ever been.
BRIAN SOZZI: Jim, full disclosure, I have never tried SPAM. But after this interview, I'm going to grill it up in my pan, and I just-- I do need to try it. I just wanted to get that out there. But going back--
JIM SNEE: All right, well, I-- you've-- you've made the commitment. I expect a report back.
BRIAN SOZZI: You absolutely will be getting an email from me tonight or tomorrow. But going back to M&A, very key that you mentioned that, do you sense anything is-- is imminent, as valuations, I suspect, have come down a little bit?
JIM SNEE: Yeah, I mean, we've had our-- our pipeline of-- of targets. And so, I mean, you know, the work will continue, as-- as we are able to have others push the-- or I'll say reset the pause button. You know, but I-- but I do think that it'll still be a hallmark of how we grow our business.
You know, as we've set goals internally, we talk about half of our growth coming organically, and we've been able to do that, and then the other half coming from M&A. And so, that'll continue to be the strategy that we have for our organization. And, of course, having that type of balance sheet that we do sets us up really well for that.
ALEXIS CHRISTOFOROUS: And quickly tell us what you're doing for employees right now as-- as their health, I'm sure, is top of mind. How are you keeping them safe? And are you hiring any more folks to meet the increase in demand?
JIM SNEE: Yeah, Alexis, I mean, we're-- we're doing everything we can to take care of our people. I mean, that is top of mind. We're, of course, like everybody else, very thankful for the health care workers who are on the front line. But our production professionals are our front line.
And while many of our team members have been able to-- to shift to work from home, you know, they can't do that. And I will tell you that they have continued to show up each and every day with a sense of responsibility and pride to continue to make the food that our country needs-- that our consumers are counting on.
And so, you know, sometimes thank you just isn't enough. And this week, we announced that we were paying over $4 million in discretionary bonuses to those production professionals. And-- and that's a great way to say thank you during these difficult times.
I mean, we know that our employees have job security. You know, we don't know what's happening throughout the rest of their family, so anything we can do to help. We've enhanced so many of our benefits-- our-- some of our emergency assistance programs.
You know, we've-- we've eliminated some of the guidelines for our other programs. And, you know, to the last part of your question, are we hiring? Yeah, we're always looking for-- for good people across our organization.
And so, again, we-- we find ourselves in a very good position. But the most important thing that we can do right now is, a, take care of our people, and b, continue to provide good, wholesome, nutritious food to our consumers, who need it more than ever.
ALEXIS CHRISTOFOROUS: Jim Snee, CEO of Hormel. Thanks so much, and-- and best of luck with everything.
JIM SNEE: Thank you very much. Appreciate it.