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Hormel Foods Marginally Performs Against Macro Headwinds in Q2

Story Highlights

Hormel Foods exited the quarter with marginal outperformance. Will the current headwinds pressurize the food maker going ahead?

American food company Hormel Foods Corporation (NYSE: HRL) reported marginally better-than-expected second quarter results. Despite the consistent inflationary pressures and supply chain issues, solid demand across all of its brands’ portfolios lifted the company’s quarterly performance.

However, bowing to the current macroeconomic environment, the company did lower its full year fiscal 2022 earnings expectations but maintained the net sales estimates.

Hormel engages in the production and distribution of various meat and food products to retail, food service, deli, and commercial customers.

At the time of writing, its shares were trading up over 1% during the pre-market trading session. HRL stock has gained 16.3% over the past six months.

Q2 Results in Detail

Hormel Foods posted diluted earnings of $0.48 per share, one cent higher than analysts’ estimates and 14% higher than the comparative prior year period.

The company’s net sales rose 19% year-over-year to $3.1 billion, surpassing analysts’ estimates of $3.07 billion. However, volume declined 2% year-over-year to 1.2 billion lbs.

Grocery products registered the highest increase in net sales of 39% year-over-year, followed by both Refrigerated Foods and Jennie-O Turkey Store, recording mid-teens growth, while the International & Other segment posted a marginal decline of 1%.

Notably, the operating margin shrank to 10.8% compared to 11.1% last year but came in slightly better than the previous quarter’s figure of 10.5%.

Chairman of the Board, President, and CEO of Hormel, Jim Snee, said, “As we continue to operate in this highly inflationary environment, we will remain focused on improving our supply chain performance, maximizing promotional effectiveness and mix, and, where necessary, taking additional pricing actions to mitigate persistent inflationary pressures.”

FY22 Outlook

The company expects continued demand for its brands across the retail, food service, and international channels along with improvement in supply chain strategies. Thus, HRL maintained its FY22 net sales outlook to fall in the range of $11.7 billion to $12.5 billion, while the consensus is pegged at $12.41 billion.

However, due to the impact of the highly pathogenic avian influenza (HPAI) on turkey supply and external factors affecting its International & Other segment, coupled with high freight and lockdowns in China, HRL lowered its FY22 earnings guidance.

The company now expects to report diluted earnings of between $1.87 per share and $1.97 per share, lower than the previous guide of $1.87 per share to $2.03 per share. Meanwhile, the consensus is pegged midway at $1.94 per share.

Hormel Stock Prediction

Wall Street analysts have a Hold consensus rating on HRL stock based on one Buy, four Holds, and one Sell recommendation in the past three months. The average Hormel Foods price forecast of $49 implies 2% upside potential to current levels.

Stock Analysis

According to TipRanks’ Smart Score, Hormel Foods has a score of five, indicating that the stock is likely to perform in line with market expectations. Bloggers are 94% bullish on the stock, and hedge funds have increased their holdings of HRL stock by 394,800 shares in the last quarter. Meanwhile, both corporate insiders and retail investors have reduced their exposure to the stock recently.

Ending Thoughts

The tightened supply market and inflationary concerns are dragging down the performance of the retail and food sectors the most. Nonetheless, Hormel Foods has demonstrated its ability to fight the headwinds and remain unscathed. Having said that, the current uncertainties suggest taking a cautious stance.

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