Packaged foods company Hormel (NYSE:HRL) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell by 1.9% year on year to $3.14 billion. On the other hand, the company’s full-year revenue guidance of $12.05 billion at the midpoint came in 1.6% below analysts’ estimates. Its non-GAAP profit of $0.42 per share was in line with analysts’ consensus estimates.
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Hormel Foods (HRL) Q3 CY2024 Highlights:
- Revenue: $3.14 billion vs analyst estimates of $3.14 billion (1.9% year-on-year decline, in line)
- Adjusted EPS: $0.42 vs analyst estimates of $0.42 (in line)
- Adjusted EBITDA: $360.9 million vs analyst estimates of $376 million (11.5% margin, 4% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $12.05 billion at the midpoint, missing analyst estimates by 1.6% and implying 1.1% growth (vs -1.6% in FY2024)
- Adjusted EPS guidance for the upcoming financial year 2025 is $1.65 at the midpoint, missing analyst estimates by 1.9%
- Operating Margin: 9.4%, in line with the same quarter last year
- Free Cash Flow Margin: 10.4%, up from 6.8% in the same quarter last year
- Sales Volumes fell 4.1% year on year (-0.4% in the same quarter last year)
- Market Capitalization: $17.45 billion
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.
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
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years.
Hormel Foods is one of the larger consumer staples companies and benefits from a well-known brand that influences consumer 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 must lean into newer products.
As you can see below, Hormel Foods grew its sales at a sluggish 1.5% compounded annual growth rate over the last three years as consumers bought less of its products. We’ll explore what this means in the "Volume Growth" section.
This quarter, Hormel Foods reported a rather uninspiring 1.9% year-on-year revenue decline to $3.14 billion of revenue, in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months, similar to its three-year rate. This projection is underwhelming and suggests its newer products will not catalyze better top-line performance yet.
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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 3.3% 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 Q3 2024, sales volumes dropped 4.1% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.
Key Takeaways from Hormel Foods’s Q3 Results
We struggled to find many resounding positives in these results. While revenue and EPS were in line with expectations, its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 3.6% to $30.67 immediately after reporting.
Hormel Foods didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock 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.
