Hormel’s Stout Brand Strength Holds Despite Ongoing Macro Headwinds; Shares Rich

Narrow-moat Hormel Foods posted solid fourth-quarter results, with organic sales edging up 2.4%, aided by an 11.8% contribution from price/mix, partially offset by a 9.4% drawdown in organic volume. However, we attribute this volume decline to a short supply of turkeys given avian flu and efforts to shed commoditized offerings, which we see as prudent. In this context, management suggested that price increases are holding, but we think continued inflationary angst could prompt consumers to opt for lower-priced private-label fare before long. To combat these pressures, we expect Hormel will maintain its unwavering commitment to funnel resources into product innovation (research and development) and marketing that should help support its brand intangible asset. This commitment even aided its food-service operations (30% of sales) in the quarter, as management said it was able to buck concerns around labor shortages to post strong results (qualitatively referenced), which we think is a byproduct of investments to build out its solutions-based product portfolio (which requires less labor).