The rising inflationary environment has been hurting Hormel Foods Corporation HRL for a while now. The leading manufacturer and marketer of various meat and food products are also battling supply chain-related issues. Drab volumes are a downside for the company’s performance.
The abovementioned factors hurt its first-quarter fiscal 2023 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate. Shares of the Zacks Rank #4 (Sell) company have declined 15.6% in the past three months compared with the industry’s 8.5% decline.
Let’s delve deeper.
Dismal Q1 Performance
Hormel Foods’ first-quarter fiscal 2023 results were hurt by the continued impact of inflationary pressures, supply chain inefficiencies and drab sales volumes. Hormel Foods’ earnings of 40 cents per share declined from 44 cents reported in the year-ago quarter. Net sales were $2,971 million, down 2.4% from $3,044.4 million reported in the year-ago quarter. The downside can be attributed to planned lower commodity pork and turkey volumes. The company saw reduced sales across all segments.
We note that the company’s earnings have been under pressure by higher inefficiencies in the supply chain due to increased inventory levels and softness in the snack nuts unit. Management lowered its earnings per share (EPS) guidance range for fiscal 2023. EPS are now envisioned in the range of $1.70-$1.82, down from the previous guidance of $1.83-$1.93.
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Hormel Foods’ continues to operate in a volatile, complex and high-cost environment. The company’s retail businesses, especially in the center store, are disproportionately affected by increased inflationary pressures. The company’s pricing actions continue to lag inflation. In the first quarter of fiscal 2023, Hormel Foods’ gross profit declined to $495.9 million from $538.7 million reported in the year-ago quarter. Gross profit margin contracted 100 basis points due to an unfavorable mix and continued inflationary pressures.
Lower Volumes Hurt
In the first quarter of fiscal 2023, volumes in the Retail segment fell 13% year over year. Foodservice segment volumes fell 6% in the fiscal first quarter. Volumes in the International unit went down 27%. In its last earnings, management stated that it saw continued volatility in the overall volume and net sales results, owing to planned volume declines across commodity pork and volume impacts in the turkey supply chain owing to avian influenza or HPAI.
Increased brand investments, innovation and Go Forward initiative actions have been supporting Hormel Foods’ growth. The company is on track with strategic investments for boosting capacity. Management is stabilizing margin pressures via cost management and supply chain cost savings initiatives. However, let’s see if these upsides can help HRL counter the hurdles mentioned above.
Looking for Better-Ranked Food Stocks? Check These
Some top-ranked stocks are Post Holding POST, General Mills GIS and The Hershey Company HSY.
Post Holdings, which is a consumer-packaged goods company, sports a Zacks Rank #1 (Strong Buy) at present. Post Holdings has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for POST’s current financial-year sales and earnings suggests growth of 2.5% and 119.6%, respectively, from the year-ago reported numbers.
General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5.1% and 6.1%, respectively, from the corresponding year-ago reported figures.
Hershey, the leader in chocolate and non-chocolate confectionery, currently carries a Zacks Rank #2. HSY has a trailing four-quarter earnings surprise of 11.3%, on average
The Zacks Consensus Estimate for Hershey’s current financial-year sales and earnings suggests growth of 7.7% and 10.1%, respectively, from the year-ago reported numbers.
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