Hormel Earnings: Q2 Results Show Signs of Quick Turnaround, but Shares Look Fairly Valued

Following Hormel’s HRL weak first-quarter results, second-quarter earnings looked pretty good. Sequentially, sales were roughly flat, volume was up about 4% and gross margin remained steady at 16.5%, as management quickly addressed the issues that plagued the start of its fiscal 2023. This included reducing bloated inventory, rightsizing manufacturing to demand, and stabilizing Planters. We don’t anticipate a change to our $37.50 fair value estimate for narrow-moat Hormel, but shares look fairly valued.

With performance looking steadier, management reiterated full-year guidance for sales growth of 1%-3% and diluted net EPS to decline 7% to flat. This implies a 6% acceleration in sales in the back half of the year, historically unusual under normal circumstances. However, the waning effect of highly pathogenic avian influenza on turkey production should help Hormel restore key production volumes this year. Many of these products did not suffer from demand erosion. Rather, Hormel just didn’t have the volumes to sell. So even as commodity turkey prices fall with flock sizes rising, the net benefit should still help the company deliver sales growth in the second half.

Planters looked better in the second quarter, as management cited 13-week volume data that showed its brand outpacing the broader packaged nuts and seeds category. A combination of new products and flavors and regained distribution appear to be helping. We remain optimistic on the prospect of Hormel turning around the acquired business despite the slowness witnessed in the first quarter.