One of the largest U.S. producers of processed foods is baking the effect of Chinese tariffs on pork products into its expectations for the rest of its fiscal year.
Hormel Foods Corp. Chairman, President and CEO James Snee said May 24 that the company expects collective sales across all of its international markets to be a bright spot in its results for the rest of 2018. Although it makes up a small part of the Austin, Minn.-based company's total sales, revenue from China in particular "is doing quite well," he told analysts during a call to discuss the company's fiscal second-quarter results.
"However, given the uncertain impact of the tariffs on the pork industry, we are expecting modestly lower sales and margin in our export business," Snee said.
China imposed tariffs on some U.S. agricultural products April 2 in response to the U.S. decision to subject imports of steel and aluminum to new tariffs. China's retaliatory list included a 25% tax on imports of pork products from the U.S.
That tariff could end, though, if negotiators from the U.S. and China reach an agreement. The world's two largest economies have been talking in recent days, and Treasury Secretary Steven Mnuchin said May 21 that a final deal could lift China's imports of U.S. farm products by between 35% and 40%.
Securing access to foreign markets is key for U.S. pork producers, who ship about 25% of their products abroad annually, according to the National Pork Producers Council. Chinese consumers occupy an important niche for U.S. farmers, industry experts say, because they purchase feet, tongues and other parts of pigs not generally desirable in the U.S.
For Hormel, China represents a high-growth market. For its second quarter, the company said international organic sales, which exclude the impact of acquisitions, divestitures and changes in the value of foreign currencies, rose 7.6%, a faster clip than any of its other three major segments.
The increase in international sales was related to strong results in China, among other factors, the company said May 24.
Hormel also pointed to other factors that could affect results during the second half of 2018. Lower prices for whole turkeys and sales volumes drove results lower during the company's fiscal second quarter, and Snee indicated that sales would continue to be sluggish for the rest of the year.
The company's grocery segment also took a hit, with sales of Muscle Milk and other protein supplements it sells under its CytoSport division weighing on results. The business has affected Hormel's results in recent quarters.
"We still like the business," Snee said when questioned by an analyst about whether Hormel would consider a sale as part of a broader review of its operations.
