Hormel Foods (NYSE:HRL) Reports Sales Below Analyst Estimates In Q1 Earnings

Jabin Bastian /
2024/05/30 6:09 am EDT

Packaged foods company Hormel (NYSE:HRL) missed analysts' expectations in Q1 CY2024, with revenue down 3% year on year to $2.89 billion. On the other hand, the company's outlook for the full year was close to analysts' estimates with revenue guided to $12.35 billion at the midpoint. It made a non-GAAP profit of $0.38 per share, down from its profit of $0.40 per share in the same quarter last year.

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Hormel Foods (HRL) Q1 CY2024 Highlights:

  • Revenue: $2.89 billion vs analyst estimates of $2.97 billion (2.7% miss)
  • EPS (non-GAAP): $0.38 vs analyst estimates of $0.36 (6% beat)
  • The company reconfirmed its revenue guidance for the full year of $12.35 billion at the midpoint
  • Gross Margin (GAAP): 17.4%, up from 16.5% in the same quarter last year
  • Free Cash Flow of $176.2 million, down 50.6% from the previous quarter
  • Sales Volumes fell 3.6% year on year
  • (-5.6% in the same quarter last year)
  • Market Capitalization: $18.68 billion

Best known for its SPAM brand, Hormel (NYSE:HRL) is a packaged foods company with products that span meat, poultry, shelf-stable foods, and spreads.

Shelf-Stable Food

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Sales Growth

Hormel Foods is one of the larger consumer staples companies and benefits from a well-known brand, giving it customer mindshare and influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 6.9% over the last three years was mediocre for a consumer staples business.

Hormel Foods Total Revenue

This quarter, Hormel Foods missed Wall Street's estimates and reported a rather uninspiring 3% year-on-year revenue decline, generating $2.89 billion in revenue. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, an acceleration from this quarter.

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Volume Growth

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

Hormel Foods's average quarterly sales volumes have shrunk by 4.5% over the last two years. This decrease isn't ideal because the quantity demanded for consumer staples products is typically stable.

Hormel Foods Year-On-Year Volume Growth

In Hormel Foods's Q1 2024, sales volumes dropped 3.6% year on year. This result was a further deceleration from the 5.6% year-on-year decline it posted 12 months ago, showing the business is struggling to push its products.

Key Takeaways from Hormel Foods's Q1 Results

We were impressed by how significantly Hormel Foods blew past analysts' gross margin expectations this quarter. We were also glad its full-year revenue guidance came in higher than Wall Street's estimates. On the other hand, this quarter's revenue and operating margin missed Wall Street's estimates, but the market doesn't seem to care because of the strong outlook. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is up 2.6% after reporting and currently trades at $35 per share.

So should you invest in Hormel Foods right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.