Hormel Foods (HRL)

Packaged foods company Hormel (NYSE:HRL) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 4.6% year on year to $3.03 billion. On the other hand, next quarter’s revenue guidance of $3.2 billion was less impressive, coming in 1.4% below analysts’ estimates. Its non-GAAP profit of $0.35 per share was 15% below 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).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $12.06 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 a finite number of major retail partners, placing a ceiling on its 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’s demand was weak over the last three years. Its sales fell by 1.5% annually as consumers bought less of its products.

This quarter, Hormel Foods reported modest year-on-year revenue growth of 4.6% but beat Wall Street’s estimates by 1.7%. Company management is currently guiding for a 2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months. While this projection indicates its newer products will fuel better top-line performance, it is still below average for the sector.

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 2.3% 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 Q2 2025, sales volumes jumped 2.7% year on year. This result was a well-appreciated turnaround from its historical levels, showing the company is heading in the right direction.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

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 16.6% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $83.39 went towards paying for raw materials, production of goods, transportation, and distribution.

Hormel Foods produced a 16.1% gross profit margin in Q2, in line with the same quarter last year but missing analysts’ estimates by 9.6%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, 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’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 8.5% over the last two years. This profitability was higher than the broader consumer staples sector, showing it did a decent job managing its expenses.

Looking at 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.

In Q2, Hormel Foods generated an operating margin profit margin of 7.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q2, Hormel Foods reported adjusted EPS of $0.35, down from $0.37 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Hormel Foods’s full-year EPS of $1.47 to grow 20.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Hormel Foods has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.4% over the last two years, slightly better than the broader consumer staples sector.

Taking a step back, we can see that Hormel Foods’s margin dropped by 2.3 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity.

Hormel Foods’s free cash flow clocked in at $84.5 million in Q2, equivalent to a 2.8% margin. The company’s cash profitability regressed as it was 2.5 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? Enter ROIC, a metric showing how much operating profit a company generates relative 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 9.5%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Hormel Foods reported $630.7 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 $1.33 billion of EBITDA over the last 12 months, we view Hormel Foods’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $39.34 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 beat analysts’ revenue expectations this quarter. On the other hand, its full-year EPS guidance missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 7% to $26.97 immediately after reporting.

Updated: November 15, 2025 at 9:53 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Hormel Foods, you should also grasp the company’s longer-term business quality and valuation.

We cheer for all companies serving everyday consumers, but in the case of Hormel Foods, we’ll be cheering from the sidelines. 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 projected EPS for the next year is lacking.

Hormel Foods’s P/E ratio based on the next 12 months is 16.7x. At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $27.06 on the company (compared to the current share price of $22.66).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.