Hudson Foods Inc.

views updated

Hudson Foods Inc.

1225 Hudson Road
Rogers, Arkansas 72756
U.S.A.
(501) 636-1100
Fax: (501) 621-5192

Public Company
Incorporated: 1972
Employees: 9,000
Sales: $1.04 billion
Stock Exchanges: New York
SICs: 2015 Poultry Slaughtering and Processing; 2013 Sausages and Other Prepared Meats

Hudson Foods, Inc., is one of the largest producers of poultry and prepared meats in the United States. The company’s client base includes grocery chains, wholesalers, and the food service industry. It is a wholly integrated producer of poultry products, capable of breeding, hatching, feeding, raising, slaughtering, processing, and marketing chicken and turkey. Hudson also produces eggs and egg products through its NEPCO division and frozen prepared foods through its subsidiary Pierre Frozen Foods Inc. Prepared meats, such as bologna, sliced turkey and sausage links are sold under the company’s Ohse, Schweigert, and Roegelein brands; poultry is sold under the Hudson brand name. Entering the mid-1990s, the company operated processing and sales operations in 11 states, a sales and distribution center in Poland, and a sales office in Russia. In 1994 company sales topped $1 billion for the first time.

Hudson Foods was incorporated in 1972 when Ralston Purina Co. sought to divest itself of its poultry business. Its nationwide facilities were bought by approximately seven different buyers, among them James T. “Red” Hudson, a long-time employee of Ralston Purina who purchased the company’s poultry processing and broiler operation in Springdale, Arkansas, as well as five distribution centers located throughout the South. According to Hudson, few changes were made at the new company. “We essentially took down one sign and put up another, changed bank accounts and went forward with people that had experience of 20 to 25 years in a lot of areas,” he said in a May 1989 Wall Street Transcript article.

The company grew quietly in its early years, adding breeder flocks, hatcheries, and growout farms to its operations. It also entered into a joint venture with Armour Food Co. to supply all the live chicken needed for its ice-pack chicken processing plant in Murfreesboro, Arkansas plant. In 1977 the company built a $1.4 million plant to turn offal and chicken feathers into high-protein meal used in animal feel. The addition of the feed plant, which was capable of producing 35 tons of feel pellets per hour, made Hudson a fully-integrated poultry operation and provided greater control over the cost and quality of its chicken feed.

By 1979 Hudson’s processing capacity had grown to 1.25 million birds per week. That year it diversified into the turkey business, purchasing a processing plant from North Star Foods and another from Empire Foods, both of Missouri. The acquisitions provided Hudson with an annual output of over three million turkeys, and served to strengthen the company’s position in grocery store freezers and foodservice operations. Hudson continued with internal expansion efforts that year as well. It broke ground for a new chicken feed-mill-hatchery-broiler processing plant that would boost annual capacity to almost two million birds per week upon its completion in 1982.

In 1982 Hudson bought Armour Food’s Murfreesboro boiler processing plant, a move that increased its ice pack chicken processing capacity by 1.3 million per year. Boosted by strong demand and Hudson’s timely acquisitions, sales grew steadily, reaching $184.6 million in 1985. The following year, the company went public on the American Stock Exchange. Soon after its initial public offering, Hudson nearly doubled its capacity with the purchase of Corbett Enterprises Inc., a chicken, turkey, eggs, and egg product operation with sales of $142.7 million. The $61.7 million acquisition, funded by an earlier sale of eight percent debentures due in the year 2006, made Hudson the seventh largest producer of chicken in the United States.

In 1987 Hudson expanded into the prepared beef and pork market with the purchase of Thies Companies, a luncheon meats manufacturer and distributor. The $12 million purchase gave Hudson rights to the Ohse brand, which had been founded in 1932 and was well-established in about five southern states. Sales in 1987 hit a record $430 million.

The following year, however, Hudson’s sales slipped by $27 million as a nationwide salmonella scare caused many consumers to avoid chicken purchases. Given Hudson’s high debt-to-equity ratio brought on by its earlier acquisitions, the loss of sales could have had drastic effects on the company’s financial health. Due to a favorable combination of tax regulations and debt classifications, though, the company survived virtually unscathed.

In 1989 company sales topped $549 million and net earnings totaled $14.8 million. Consumer demand for chicken was on the rise as fast-food chains and other foodservice operations initiated intensive campaigns to market chicken as a low-fat, low cholesterol alternative to beef. Hudson had also diversified its product base by this time. Approximately one-eighth of the company’s output came from the Ohse meat lines, while another one-eighth was in turkey. Chicken, eggs, and egg products accounted for 75 percent of output. Half of the company’s production in these areas was sold under the Hudson brand name; the other half was sold to restaurants and fast-food chains.

Hudson maintained operations in Arkansas, Georgia, Alabama, Maryland, Indiana, Missouri, and Oklahoma, and although its market primarily covered the Midwest, it expanded north to Canada and west to California. Chairman and CEO James T. Hudson summarized his company’s position in the Wall Street Transcript: “Our company is a food company and we intend to stay in the food area. ... We definitely see ourselves increasing market share in our poultry area but we also see the opportunity to increase in various lunch meats, some of which have a base raw material of poultry, but with some beef and pork. With the trend, which has been in the development stage for a number of years where more families eat out, we’re seeing an awful lot of our products going into the fast food segment and into the prepared food section in the retail stores.”

Hudson further increased its presence in the northern market in 1989 when it purchased a turkey processing plant and the Schweigert line of luncheon meats from Land O’Lakes Inc. for a stock exchange valued at about $10.6 million, plus a future payment in cash or stock. The exchange gave Hudson the rights to the Schweigert brand name. The agreement also gave Hudson temporary rights to market turkey and turkey products under the Land O’Lakes brand while it merged the Land O’Lakes operations with its own.

During the 1980s Hudson’s growth followed an industry-wide trend in which the small, independent processing plants that once dotted the country were absorbed by approximately ten companies. These industry giants grew to control over 80 percent of national poultry production by 1990. As Hudson approached its third decade of operation, the company entered a new phase of development. It began its first regional advertising campaign, utilizing television, radio, and local newspapers; built a research and development center to create further-processed food products; and began marketing its new products overseas.

Hudson continued its acquisitions of small companies as it moved towards its goal of becoming a complete food company. In February 1990 it purchased Pierre Frozen Foods, a supplier of prepared frozen foods to the foodservice industry, for approximately $10 million in stock and cash. Two months later it acquired the Roegelein Co., a manufacturer and marketer of luncheon meats under the Roegelein brand name. A short time after that acquisition, Hudson purchased a major chain of wholesale club stores to provide a retail outlet for its products. The company also began construction of a plant to produce highly processed convenience food items from turkey; such a facility would complement the Land O’Lakes line of turkey products it had recently acquired.

Sales grew to $666.7 million in 1990, but earnings plummeted to $8.7 million from $22.8 million the previous year. The sharp drop in earnings was primarily due to an industry-wide glut of chicken and turkey that spurred dramatic reductions in prices. Turkey sales were further eroded that year by construction delays and start-up troubles at Hudson’s new turkey-processing plant. Armed with a ten-fold increase in research and development funding, Hudson began an aggressive campaign to create convenience items for the grocery and foodservice market. Its goal was to minimize the company’s vulnerability to the commodity-driven poultry market by developing value-added items from its pre-existing product lines.

By the end of 1991, Hudson had organized its businesses into five divisions (chicken, luncheon meats, portioned entrees, turkey, and egg products) and was taking measures to consolidate and coordinate the production and sales of its brands. Chicken sales continued to be the company’s major source of revenue, accounting for 55 percent of output from its chicken division. Other significant sources included turkey (12 percent of output), Ohse, Roegelein and Schweigert luncheon meats lines (19 percent), and Hudson’s new Pierre Frozen Foods division (14 percent).

Overproduction of turkey and turkey products continued to plague the industry in 1992. Hudson responded to the market by streamlining operations, dropping unprofitable product lines, and focusing on marketing through club stores. The company also emphasized efforts to reach the food service market, where demand was strongest. By centralizing financial operations, coordinating sales, and making capital improvement at almost all its plants, Hudson was able to cut operating expenditures in its luncheon meats division by 15 percent in 1992.

That year the company also transformed its turkey division to develop other processed turkey products such as turkey pastrami and turkey ham. Marketed through grocery store delicatessens and foodservice distributors under the Deli Mesiter brand, sales of Hudson’s turkey products soon began to rival sales of its whole birds. Sales in its Pierre Frozen Foods division grew by 50 percent in 1992, fueled by sales into new Canadian and Mexican markets and the popularity of its Rib-B-Q boneless barbecue-flavored pork, Micro-Wiches pre-wrapped micro-waveable sandwiches, and school cafeteria lunch programs.

Despite these successes, Hudson faced a number of difficulties in 1992. Profits in its chicken division continued to lag, burdened by industry overproduction and unfavorable events in the local and international economies. Hudson continued to develop new chicken product lines, though, including a line of spiced and breaded individually frozen chicken portions that allowed the company to market to grocery delicatessens as well as foodservice companies and club stores.

Sales in Hudson’s egg division, which had posted strong earnings through the late 1980s, also slumped in 1992 as the industry faced a glut of eggs on the market. As with its other divisions, Hudson sought to reduce its vulnerability to commodity prices by developing a number of low-cholesterol egg-based products at its NEPCO egg further-processing plant.

Annual sales in 1992 reached a record high of $809 million, yet net income plummeted again to $2.1 million, down from $8.7 million in 1991. To further reduce its vulnerability to the American poultry market, Hudson embarked on an international sales drive, acquiring new clients in Central America, Eastern Europe, the Middle East, and the Pacific Rim.

By 1993 Hudson’s focus on research and development and division integration began to pay off. Its Complete Meal Kits, a line of chicken fajitas, beef stir fry, and breakfast sandwiches was launched in 1993. Marketed through Hudson’s its portioned foods (Pierre) division, the product line showed a profit in its first year. Sales of its further-processed turkey products also improved, while sales of Hudson’s eggs and egg products to snack food, pasta, and baked goods manufacturers rose as well. Sales grew by 400 percent between 1990 and 1993, and although profits slumped, the company was positioning itself for growth. In 1993 sales reached $920.5 million and net income leapt to $15 million, buoyed by the stabilization of the poultry market and improved operating efficiencies in all Hudson’s divisions.

In 1994 Hudson’s enjoyed a record $1.04 billion in sales. Net income grew to $27.0 million, up 69.7 percent from 1993. The company landed a multi-year contract to produce beef patties for Burger King, while its chicken and portioned entree divisions posted their best years in the history of the company on the strength of a contract to supply poultry to Boston Chicken, a rapidly expanding national restaurant chain. Hudson’s Pierre Frozen Foods division experienced growth as well, supported by an innovative marketing program that won a National Frozen Food Manufacturers Association award for best frozen food merchandising.

After 30 years of growth through acquisition, Hudson has successfully expanded its sales in recent years through innovative product development and marketing. It has a well-balanced portfolio of product lines and a diverse array of customers— from shoppers at warehouse clubs, delicatessens, and grocery store chains to restaurants, school cafeterias, and national fast food chains. Entering the mid-1990s, Hudson, armed with a strong balance sheet, planned to continue expansion efforts through acquisitions and internal growth.