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Hormel Foods' (HRL) Solid on Innovations, Pandemic-Led Costs Stay
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Hormel Foods Corporation (HRL - Free Report) has been benefiting from various growth endeavors like innovations and capacity enhancement efforts, including prudent buyouts. However, the company has been seeing weakness in its foodservice business, thanks to the pandemic. This, coupled with escalated costs, is concerning.
Let’s take a closer look.
What’s Working in Hormel Foods’ Favor?
Hormel Foods’ focus on innovation is yielding results. To this end, products such as SPAM, SKIPPY, Hormel chili, Hormel Black Label and Lloyd Hormel fully cooked entrees, among others, have been contributing to the company’s growth. In recent endeavors, the company introduced the Hormel pretzel bites and cheese tray — a new addition to the Hormel Gatherings line. The launch is appropriate during the increasing home-based working and schooling trend, as well as smaller get-togethers amid COVID-19.
In December 2020, the company introduced its new plant-based protein puffs under the Happy Little Plants brand line-up. With rising health consciousness, plant-based food alternatives are gaining prominence. This provides opportunities for companies like Hormel Foods to diversify and grow. The company has been making strategic advertisement investments to support growth of its brands. Additionally, it focuses on launching products to meet consumers’ preferences.
Hormel Foods intends to strengthen its business on the back of strategic acquisitions. On Feb 11, 2021 the company announced the acquisition of Planters snack nuts business from The Kraft Heinz Company (KHC - Free Report) . The deal includes Planters, NUT-rition, Planters Cheez Balls and Corn Nuts brands. Further, the company acquired a Texas-based pit-smoked meats company, Sadler's Smokehouse (March 2020). The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.
Along with lucrative acquisitions, Hormel Foods is on track with other strategic investments for boosting capacity. Notably, the company incurred capital expenditures of $40 million in the first quarter of fiscal 2021. During the quarter, management commenced its Burke pizza toppings plant expansion. In its last earnings call, management also highlighted that it is focusing on expanding the capacity of its pepperoni business. In December 2020, the company announced the opening of a new manufacturing plant — Papillion Foods — situated in Papillion, NE. Management expects capital expenditures of $260 million for fiscal 2021.
Hurdles in the Way
Despite strong performance in Hormel Foods’ retail business, the company is seeing declines in its foodservice business amid the pandemic. This could be attributed to reduced demand from various foodservice venues like colleges and universities in the wake of COVID-19-induced social distancing. During the fiscal first quarter, net sales in U.S. foodservice channel declined 17% year over year. That being said, the company expects to see recovery in its foodservice business, gradually.
Apart from these, Hormel Foods’ has been seeing escalated costs associated with COVID-19. During the said quarter, the company absorbed nearly $15 million in direct incremental supply-chain costs, mainly induced by reduced production volumes and better safety measures in its manufacturing facilities amid the pandemic.
Nevertheless, we expect the aforementioned upsides to help this Zacks Rank #3 (Hold) company stay poised amid such headwinds. Shares of Hormel Foods have gained 3.4% year to date, compared with the industry’s growth of 13.1%.
The J. M. Smucker Company (SJM - Free Report) , currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Image: Bigstock
Hormel Foods' (HRL) Solid on Innovations, Pandemic-Led Costs Stay
Hormel Foods Corporation (HRL - Free Report) has been benefiting from various growth endeavors like innovations and capacity enhancement efforts, including prudent buyouts. However, the company has been seeing weakness in its foodservice business, thanks to the pandemic. This, coupled with escalated costs, is concerning.
Let’s take a closer look.
What’s Working in Hormel Foods’ Favor?
Hormel Foods’ focus on innovation is yielding results. To this end, products such as SPAM, SKIPPY, Hormel chili, Hormel Black Label and Lloyd Hormel fully cooked entrees, among others, have been contributing to the company’s growth. In recent endeavors, the company introduced the Hormel pretzel bites and cheese tray — a new addition to the Hormel Gatherings line. The launch is appropriate during the increasing home-based working and schooling trend, as well as smaller get-togethers amid COVID-19.
In December 2020, the company introduced its new plant-based protein puffs under the Happy Little Plants brand line-up. With rising health consciousness, plant-based food alternatives are gaining prominence. This provides opportunities for companies like Hormel Foods to diversify and grow. The company has been making strategic advertisement investments to support growth of its brands. Additionally, it focuses on launching products to meet consumers’ preferences.
Hormel Foods intends to strengthen its business on the back of strategic acquisitions. On Feb 11, 2021 the company announced the acquisition of Planters snack nuts business from The Kraft Heinz Company (KHC - Free Report) . The deal includes Planters, NUT-rition, Planters Cheez Balls and Corn Nuts brands. Further, the company acquired a Texas-based pit-smoked meats company, Sadler's Smokehouse (March 2020). The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.
Along with lucrative acquisitions, Hormel Foods is on track with other strategic investments for boosting capacity. Notably, the company incurred capital expenditures of $40 million in the first quarter of fiscal 2021. During the quarter, management commenced its Burke pizza toppings plant expansion. In its last earnings call, management also highlighted that it is focusing on expanding the capacity of its pepperoni business. In December 2020, the company announced the opening of a new manufacturing plant — Papillion Foods — situated in Papillion, NE. Management expects capital expenditures of $260 million for fiscal 2021.
Hurdles in the Way
Despite strong performance in Hormel Foods’ retail business, the company is seeing declines in its foodservice business amid the pandemic. This could be attributed to reduced demand from various foodservice venues like colleges and universities in the wake of COVID-19-induced social distancing. During the fiscal first quarter, net sales in U.S. foodservice channel declined 17% year over year. That being said, the company expects to see recovery in its foodservice business, gradually.
Apart from these, Hormel Foods’ has been seeing escalated costs associated with COVID-19. During the said quarter, the company absorbed nearly $15 million in direct incremental supply-chain costs, mainly induced by reduced production volumes and better safety measures in its manufacturing facilities amid the pandemic.
Nevertheless, we expect the aforementioned upsides to help this Zacks Rank #3 (Hold) company stay poised amid such headwinds. Shares of Hormel Foods have gained 3.4% year to date, compared with the industry’s growth of 13.1%.
Better-Ranked Food Stocks
Medifast, Inc. (MED - Free Report) , currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 17.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The J. M. Smucker Company (SJM - Free Report) , currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>