Hormel Foods (HRL)

Packaged foods company Hormel (NYSE:HRL) met Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $2.90 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $12.1 billion at the midpoint. Its non-GAAP profit of $0.35 per share was in line with analysts’ consensus estimates.

Company Overview

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.

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.

Competitors in packaged food with a focus on meat include Kraft Heinz (NASDAQ:KHC), Tyson (NYSE:TSN), and Pilgrim’s Pride (NASDAQ:PPC).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $11.92 billion in revenue over the past 12 months, Hormel Foods is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only so many big store chains to sell into, making it harder to find incremental growth. To accelerate sales, Hormel Foods likely needs to optimize its pricing or lean into new products and international expansion.

As you can see below, Hormel Foods struggled to generate demand over the last three years. Its sales dropped by 1.5% annually as consumers bought less of its products.

This quarter, Hormel Foods’s $2.90 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months. While this projection indicates its newer products will fuel better top-line performance, it is still below the sector average.

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 2.4% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.

In Hormel Foods’s Q1 2025, sales volumes dropped 5.7% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

Hormel Foods has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 16.7% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $83.31 went towards paying for raw materials, production of goods, transportation, and distribution.

Hormel Foods produced a 16.7% gross profit margin in Q1, in line with the same quarter last year and analysts’ estimates. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Hormel Foods has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 8.5%, higher than the broader consumer staples sector.

Analyzing the trend in its profitability, Hormel Foods’s operating margin might fluctuated slightly but has generally stayed the same over the last year. Shareholders will want to see Hormel Foods grow its margin in the future.

This quarter, Hormel Foods generated an operating profit margin of 8.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Hormel Foods, its EPS declined by 6.5% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, Hormel Foods reported EPS at $0.35, down from $0.38 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 2.2%. Over the next 12 months, Wall Street expects Hormel Foods’s full-year EPS of $1.49 to grow 16.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Hormel Foods has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 7% over the last two years, better than the broader consumer staples sector.

Taking a step back, we can see that Hormel Foods’s margin dropped by 2.4 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity.

Hormel Foods broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 6.7 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hormel Foods historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Hormel Foods reported $699 million of cash and $2.86 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.34 billion of EBITDA over the last 12 months, we view Hormel Foods’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $16.17 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Hormel Foods’s slightly raise its full-year revenue guidance. On the other hand, its EBITDA missed and it lowered its full-year EPS guidance. Overall, this quarter could have been better. The stock remained flat at $29.83 immediately after reporting.

Updated: June 12, 2025 at 10:45 PM EDT

Are you wondering whether to buy Hormel Foods or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Hormel Foods isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue has declined over the last three years. And while its favorable brand awareness gives it meaningful influence over consumers’ dining decisions, the downside is its gross margins make it more challenging to reach positive operating profits compared to other consumer staples businesses. On top of that, its declining EPS over the last three years makes it a less attractive asset to the public markets.

Hormel Foods’s P/E ratio based on the next 12 months is 18x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $32.32 on the company (compared to the current share price of $30.88).