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Capacity Expansion Aids Hormel Foods (HRL), High Costs Ail
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Hormel Foods Corporation (HRL - Free Report) benefits from its strategic growth initiatives, including capacity-expansion efforts. The renowned food company’s solid brand portfolio, improved foodservice business and higher pricing are vital drivers. These factors boosted third-quarter fiscal 2022 results, with the top and the bottom line increasing year over year.
That being said, Hormel Foods is not immune to the inflationary environment. Let’s delve deeper.
Solid Q3 Performance, Sales View Up
Hormel Foods’ third-quarter fiscal 2022 earnings of 40 cents per share increased from the year-ago quarter’s adjusted earnings of 39 cents per share. Net sales were $3,034.4 million, up 6%, while organic net sales increased 3%. Channel-wise, net sales across U.S. Retail and U.S. Foodservice moved up 4% and 14%, respectively. Demand remained high in U.S. channels. The company gained from its pricing efforts to counter inflation along with gains from the Planters snacks nuts business.
Hormel Foods is confident about exceeding its previous sales view for fiscal 2022 due to the solid demand for its foodservice and center store grocery brands, stronger turkey markets and increased pricing actions. HRL now projects fiscal 2022 net sales in the range of $12.2-$12.8 billion, up from the earlier view of $11.7-$12.5 billion.
Image Source: Zacks Investment Research
Factors Working in Hormel Foods’ Favor
The Zacks Rank #3 (Hold) company is on track with strategic investments for boosting capacity. The company’s capital expenditures in the third quarter of fiscal 2022 amounted to $61 million. It expects to incur capital expenditures of $310 million in fiscal 2022. In its last earnings call, management highlighted that it is benefiting from the new production capacity it has added to the system in the last year. The company remains on track to open new capacity for SPAM in the first half of fiscal 2023. Management stated that it has been investing in plant-based offerings and is witnessing growth in its plant-based pepperoni and crumbles products. It is encouraged to utilize its expertise in the pizza toppings category to aid growth in plant-based toppings.
Hormel Foods intends to strengthen its business on the back of strategic acquisitions. On Jun 7, 2021 the company acquired Planters snacking portfolio. During second-quarter fiscal 2022, Hormel Foods concluded the integration of all the aspects of the Planters snack nuts business. 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.
In August 2022, Hormel Foods unveiled the next step in its strategic evolution, the Go Forward initiative. Effective Oct 31, 2022 (fiscal 2023 beginning), Hormel Foods will organize its business into three empowered segments: retail, foodservice and international. The move will elevate its strategic growth priorities; better align the business to the needs of the customers, consumers and operators while deepening sales capabilities. The initiative will simplify the company’s approach to customers and operators and enable faster decision-making. In addition, Hormel Foods’ One Supply Chain initiative has centralized operations, logistics and sourcing decisions to fuel the efficiencies for the company. The modernization of its technology and e-commerce abilities, including Project Orion, the formation of the Digital Experience Group and the transformational efforts at Jennie-O Turkey Store bode well.
Hurdles on Way
In the third quarter of fiscal 2022, Hormel Foods’ volumes were 1.1 million lbs, down 11.1% year over year. Organic volume declined 11%, reflecting efforts to rationalize lower-margin commodity port volume and reduced turkey sales caused by HPAI. Export volumes fell owing to the present export logistics issues and reduced commodity sales owing to its new pork supply agreement. Sales in China were hampered by the adverse impacts of COVID-induced restrictions and temporary planned shutdowns.
In its last earnings call, Hormel Foods highlighted that it anticipates cost inflation to persist, especially related to logistics, operations and raw material inputs. During its fiscal third-quarter earnings release, management pulled down earnings guidance. For fiscal 2022, earnings per share (EPS) are now envisioned in the range of $1.78-$1.85 compared with the previous band of $1.87-$1.97.
The aforementioned upsides are likely to offer some respite. HRL’s stock has gained 6.8% in the past year against the industry’s 19.2% decline.
Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks Rank of 1 (Strong Buy). LANC delivered an earnings surprise of 170% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lancaster Colony’s current financial year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.
TreeHouse Foods, which manufactures and distributes private label foods and beverages, sports a Zacks Rank #1 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and EPS suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported numbers.
J. M. Smucker, which manufactures and markets branded food and beverage products, carries a Zacks Rank #2 (Buy). J. M. Smucker delivered a trailing four-quarter earnings surprise of 20.8%, on average.
The Zacks Consensus Estimate for SJM’s current financial year sales suggests growth of 4.4% from the year-ago period’s reported figure.
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Capacity Expansion Aids Hormel Foods (HRL), High Costs Ail
Hormel Foods Corporation (HRL - Free Report) benefits from its strategic growth initiatives, including capacity-expansion efforts. The renowned food company’s solid brand portfolio, improved foodservice business and higher pricing are vital drivers. These factors boosted third-quarter fiscal 2022 results, with the top and the bottom line increasing year over year.
That being said, Hormel Foods is not immune to the inflationary environment. Let’s delve deeper.
Solid Q3 Performance, Sales View Up
Hormel Foods’ third-quarter fiscal 2022 earnings of 40 cents per share increased from the year-ago quarter’s adjusted earnings of 39 cents per share. Net sales were $3,034.4 million, up 6%, while organic net sales increased 3%. Channel-wise, net sales across U.S. Retail and U.S. Foodservice moved up 4% and 14%, respectively. Demand remained high in U.S. channels. The company gained from its pricing efforts to counter inflation along with gains from the Planters snacks nuts business.
Hormel Foods is confident about exceeding its previous sales view for fiscal 2022 due to the solid demand for its foodservice and center store grocery brands, stronger turkey markets and increased pricing actions. HRL now projects fiscal 2022 net sales in the range of $12.2-$12.8 billion, up from the earlier view of $11.7-$12.5 billion.
Image Source: Zacks Investment Research
Factors Working in Hormel Foods’ Favor
The Zacks Rank #3 (Hold) company is on track with strategic investments for boosting capacity. The company’s capital expenditures in the third quarter of fiscal 2022 amounted to $61 million. It expects to incur capital expenditures of $310 million in fiscal 2022. In its last earnings call, management highlighted that it is benefiting from the new production capacity it has added to the system in the last year. The company remains on track to open new capacity for SPAM in the first half of fiscal 2023. Management stated that it has been investing in plant-based offerings and is witnessing growth in its plant-based pepperoni and crumbles products. It is encouraged to utilize its expertise in the pizza toppings category to aid growth in plant-based toppings.
Hormel Foods intends to strengthen its business on the back of strategic acquisitions. On Jun 7, 2021 the company acquired Planters snacking portfolio. During second-quarter fiscal 2022, Hormel Foods concluded the integration of all the aspects of the Planters snack nuts business. 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.
In August 2022, Hormel Foods unveiled the next step in its strategic evolution, the Go Forward initiative. Effective Oct 31, 2022 (fiscal 2023 beginning), Hormel Foods will organize its business into three empowered segments: retail, foodservice and international. The move will elevate its strategic growth priorities; better align the business to the needs of the customers, consumers and operators while deepening sales capabilities. The initiative will simplify the company’s approach to customers and operators and enable faster decision-making. In addition, Hormel Foods’ One Supply Chain initiative has centralized operations, logistics and sourcing decisions to fuel the efficiencies for the company. The modernization of its technology and e-commerce abilities, including Project Orion, the formation of the Digital Experience Group and the transformational efforts at Jennie-O Turkey Store bode well.
Hurdles on Way
In the third quarter of fiscal 2022, Hormel Foods’ volumes were 1.1 million lbs, down 11.1% year over year. Organic volume declined 11%, reflecting efforts to rationalize lower-margin commodity port volume and reduced turkey sales caused by HPAI. Export volumes fell owing to the present export logistics issues and reduced commodity sales owing to its new pork supply agreement. Sales in China were hampered by the adverse impacts of COVID-induced restrictions and temporary planned shutdowns.
In its last earnings call, Hormel Foods highlighted that it anticipates cost inflation to persist, especially related to logistics, operations and raw material inputs. During its fiscal third-quarter earnings release, management pulled down earnings guidance. For fiscal 2022, earnings per share (EPS) are now envisioned in the range of $1.78-$1.85 compared with the previous band of $1.87-$1.97.
The aforementioned upsides are likely to offer some respite. HRL’s stock has gained 6.8% in the past year against the industry’s 19.2% decline.
Some Solid Food Bets
Some better-ranked stocks are Lancaster Colony (LANC - Free Report) , TreeHouse Foods (THS - Free Report) and The J. M. Smucker (SJM - Free Report) .
Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks Rank of 1 (Strong Buy). LANC delivered an earnings surprise of 170% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lancaster Colony’s current financial year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.
TreeHouse Foods, which manufactures and distributes private label foods and beverages, sports a Zacks Rank #1 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and EPS suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported numbers.
J. M. Smucker, which manufactures and markets branded food and beverage products, carries a Zacks Rank #2 (Buy). J. M. Smucker delivered a trailing four-quarter earnings surprise of 20.8%, on average.
The Zacks Consensus Estimate for SJM’s current financial year sales suggests growth of 4.4% from the year-ago period’s reported figure.