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Hormel Foods (HRL) Stock Down More Than 10% YTD: Here's Why

Hormel Foods Corporation HRL has been bearing the brunt of rising inflationary pressure and supply chain bottlenecks for a while. The leading manufacturer and marketer of various meat and food products is also battling drab volumes. These factors hurt HRL’s first-quarter fiscal 2023 results, with earnings and net sales declining year over year and missing the Zacks Consensus Estimate. Margins also remained soft in the quarter.  

HRL’s earnings have been under pressure by higher inefficiencies in the supply chain due to increased inventory levels and softness in the snack nuts unit. Incidentally, management lowered its earnings per share (EPS) guidance range for fiscal 2023. EPS are now envisioned in the range of $1.70-$1.82, down from the previous guidance of $1.83-$1.93.

Shares of the Zacks Rank #4 (Sell) company have declined 11.7% year to date compared with the industry’s 6.6% decline. Let’s delve deeper.

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Zacks Investment Research

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Inflation Hurts Margin

Hormel Foods’ continues to operate in a volatile, complex and high-cost environment. The company’s retail businesses, especially in the center store, are disproportionately affected by increased inflationary pressures. The company’s pricing actions continue to lag inflation. In the first quarter of fiscal 2023, Hormel Foods’ gross profit declined to $495.9 million from $538.7 million reported in the year-ago quarter. Gross profit margin contracted 100 basis points due to an unfavorable mix and continued inflationary pressures.

Lower Volumes a Hurdle

In the first quarter of fiscal 2023, volumes in the Retail segment fell 13% year over year. Foodservice segment volumes fell 6% in the fiscal first quarter. Volumes in the International unit went down 27%. In its last earnings, management stated that it saw continued volatility in the overall volume and net sales results, owing to planned volume declines across commodity pork and volume impacts in the turkey supply chain owing to avian influenza or HPAI.

Wrapping Up

Hormel Foods is on track with strategic investments for boosting capacity. The company stabilizes margin pressures via cost management and supply chain cost savings initiatives. Increased brand investments, innovation and Go Forward initiative actions have been supporting HRL’s growth.

That being said, let’s see if these upsides can help the company counter the hurdles mentioned above.

Solid Staple Bets

Some better-ranked consumer staple stocks are General Mills GIS, Beyond Meat BYND and Kimberly-Clark Corporation KMB.

General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 6.3% and 7.4%, respectively, from the corresponding year-ago reported figures.

Beyond Meat, which develops, manufactures, markets and sells plant-based meat products, currently carries a Zacks Rank #2. BYND has a trailing four-quarter negative earnings surprise of 29.3%, on average.

The Zacks Consensus Estimate for Beyond Meat’s current fiscal-year earnings suggests an increase of 39.7% from the year-ago reported number.

Kimberly Clark is engaged in the manufacture and marketing of a wide range of consumer products around the world. It currently has a Zacks Rank of 2. KMB has a trailing four-quarter earnings surprise of 1.4%, on average.

The Zacks Consensus Estimate for Kimberly Clark’s current financial year sales and earnings suggests growth of almost 2% and 5.2%, respectively, from the year-ago reported numbers.


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