Hormel Foods (NYSE:HRL) reports first-quarter sales below analyst estimates

Packaged food company Hormel (NYSE:HRL) missed analyst expectations in the first quarter of 2024, reporting a 3% year-over-year revenue decline to $2.89 billion. On the other hand, the company’s full-year outlook was in line with analyst estimates, with mid-year revenue of $12.35 billion. It posted non-GAAP earnings of $0.38 per share, compared with earnings of $0.40 per share in the same quarter last year.

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Hormel Foods (HRL) Q1 2024 Highlights:

• Income: $2.89 billion vs. analyst estimates of $2.97 billion (missing 2.7%)

• EPS (non-GAAP): $0.38 vs. analyst estimates of $0.36 (over 6%)

• Business confirmed its revenue forecasts for the entire year in the medium term amounting to USD 12.35 billion

• Gross margin (GAAP): 17.4%, compared to 16.5% in the same quarter last year

• Free cash flow amounted to USD 176.2 million, a decrease of 50.6% compared to the previous quarter

• Sales volume decreased by 3.6% year-on-year

• Market capitalization: $18.68 billion

Hormel (NYSE:HRL), best known for its SPAM brand, is a packaged food company with products including meat, poultry, shelf-stable foods and spreads.

Food with shelf life

As America industrialized and moved away from an agricultural economy, people faced greater demands on their time. Packaged foods have emerged as a convenience solution for the growing American family, whether it’s canned foods or snacks. Today, Americans are looking for brands characterized by high quality, reliability and reasonable prices. Additionally, there is an increasing emphasis on health-conscious and sustainable food. Packaged food supplies are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they adapt to changing consumer preferences. The industry ranges from multinational corporations to smaller specialized companies and is subject to food safety and labeling regulations.

Increase in sales

Hormel Foods is one of the larger consumer staples companies and benefits from a well-known brand that allows it to share customer feedback and influence purchasing decisions.

As you can see below, the company’s 6.9% annual revenue growth rate over the last three years was average for the consumer products industry.

For the quarter, Hormel Foods missed Wall Street estimates and posted a rather uninspiring 3% year-over-year revenue decline, generating revenue of $2.89 billion. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, an acceleration from this quarter.

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Volume increase

Revenue growth can be broken down into changes in price and volume (number of units sold). While both are important, volume is the driving force behind a successful staples business because there is a ceiling on the amount consumers will pay for everyday goods; they can always switch to off-brand products if the branded versions are too expensive.

Hormel Foods’ average quarterly sales volume has declined 4.5% over the past two years. This decline is not ideal because the amount of demand for consumer staples is typically stable.

In the first quarter of 2024, Hormel Foods sales volume decreased 3.6% year over year. This result represented a further slowdown from the 5.6% year-on-year decline recorded 12 months ago, showing that the company was struggling to promote its products.

Key takeaways from Hormel Foods’ first quarter results

We were impressed by how significantly Hormel Foods exceeded analyst gross margin expectations this quarter. We were also pleased that full-year revenue forecasts were higher than Wall Street estimates. On the other hand, revenue and operating margin for the quarter were weaker than Wall Street estimates, but the market doesn’t seem to care due to the good prospects. To put things into perspective, we think it was still a decent, if mixed, quarter, showing that the company is on the right track. Following the report, the company’s stock rose 2.6% and is now valued at $35 per share.

So is it worth investing in Hormel Foods now? When making this decision, you need to take into account its valuation, business features, as well as what happened in the last quarter. We cover this in our full, practical research report, which you can read here – it’s free.