Capacity Expansions Fuel Hormel Foods (HRL), High Costs Ail
Hormel Foods Corporation HRL benefits from its strategic growth drives, including Go Forward initiative. The leading manufacturer and marketer of various meat and food products is on track with capacity-expansion efforts. That being said, the company is not immune to rising-cost environment.
Let’s delve deeper.
What’s Driving Hormel Foods’ Growth?
The Zacks Rank #3 (Hold) company has been benefiting from its strategic evolution, Go Forward initiative. In this regard, HRL transitioned to three operating segments, namely Retail, Foodservice and International. The move elevates its strategic growth priorities, better aligns business to the needs of customers, consumers and operators while deepening sales capabilities.
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Hormel Foods’ One Supply Chain initiative has centralized operations, logistics and sourcing decisions to fuel efficiencies for the company. Modernization of its technology and e-commerce abilities, including Project Orion, formation of Digital Experience Group and transformational efforts at Jennie-O Turkey Store, bode well.
HRL intends to strengthen its business on the back of strategic acquisitions. In fourth-quarter fiscal 2022, it acquired a minority stake in an Indonesia-based food and beverage company, PT Garudafood Putra Putri Jaya Tbk. The buyout has helped Hormel Foods to expand its presence in Indonesia and Southeast Asia.
In June 2021, HRL acquired snack company Planters for $3.35 billion. This apart, its buyout of Sadler's Smokehouse in March 2020 has strengthened its position in the foodservice space.
Hormel Foods emphasizes strategic investments to boost its capacity. Management is expecting to incur $280 million in capital expenditures in 2023. HRL is on track to expand its SPAM product portfolio.
Management is also working to expand Columbus line of premium charcuterie products and adding capacity for higher-demand Planters products at Fort Smith, AR, facility. HRL is investing significantly in automation projects, evident by its concluded project supporting turkey processing at the Faribault, MN, unit.
Cost Hurdles
Hormel Foods continues to operate in a volatile, complex and high-cost environment. Its retail businesses, especially in the center store, continue to be disproportionately affected by increased inflationary pressures. The brand’s pricing actions continue to lag inflation.
In the second quarter of fiscal 2023, Hormel Foods’ gross profit declined to $491.4 million from $553.5 million reported in the year-ago quarter. Gross profit margin contracted 140 basis points due to a decline in sales. That said, management is focusing on to stabilize margin pressures via pricing actions, operational cost management and supply-chain cost-savings initiatives.
HRL’s stock has declined 1.1% in the past three months against the industry’s 6.3% growth.
Solid Staple Bets
Here we have highlighted three better ranked stocks, namely TreeHouse Foods, Inc. THS, Lamb Weston Holdings LW and Celsius Holdings CELH.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank #1 (Strong Buy). THS has a trailing four-quarter earnings surprise of 49.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TreeHouse Foods’ current financial-year’s sales suggests a decline of 12.4% from the year-ago reported numbers.
Lamb Weston, a leading supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers worldwide, presently flaunts a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 47.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year’s sales and earnings indicates growth of 29.6% and 117.3%, respectively, from the year-ago reported figures. The expected EPS growth rate for three to five years is 42.7%.
Celsius Holdings, which offers functional drinks and liquid supplements, carries a Zacks Rank #2 (Buy) at present. CELH delivered an earnings surprise of 81.8% in the last reported quarter.
The Zacks Consensus Estimate for Celsius Holdings’ current fiscal-year’s sales and earnings implies surges of 69.6% and 154.4%, respectively, from the prior-year numbers.
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Hormel Foods Corporation (HRL) : Free Stock Analysis Report
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