Analyst Note| Rebecca Scheuneman, CFA |
Like its packaged food peers, Hormel is experiencing significant challenges stemming from labor shortages, supply chain disruption, and inflation. But we think Hormel’s strong brands (one factor underpinning its narrow moat) should allow the firm to successfully pass higher costs to consumers. In fact, management said its brands are outperforming the volume impacts predicted by its elasticity models. Further, as many of the products Hormel sells to the food-service channel are prepared foods--designed to help restaurants save on labor costs--strong demand for these items is driving market share gains for Hormel, with the quarter’s food-service sales 16% above the comparable quarter in 2019, although a portion of the gain is driven by price.