Hormel Foods Corp. (NYSE: HRL) had a rough Thursday on Wall Street. The company reported mixed fiscal third-quarter results, and investors didn't love what they saw. Shares dropped 8.77% to $21.63 by the time of publication, according to market data.
The headline numbers were a bit of a mixed bag. Adjusted earnings came in at 37 cents per share, beating the 35-cent consensus estimate. But sales of $2.96 billion missed the $3.04 billion analysts were looking for. So, a beat on the bottom line, a miss on the top line. Classic.
Digging into the details, adjusted operating margin expanded to 9% from 8.4% a year earlier. Operating cash flow jumped 54% to $241 million, which is always nice to see. Capital spending declined to $68 million from $72 million. The company ended the quarter with $840 million in cash, excluding assets held for sale. Inventories increased by $54 million to $1.8 billion.
President and CEO-elect John Ghingo attributed the lower sales to a few factors: portfolio changes, weaker commodity pricing in some categories, and continued pressure on consumers. That last one is a recurring theme these days.
Hormel also agreed to sell its Brazil operations under the Ceratti brand. The sale closed early in the fiscal fourth quarter, and its expected impact is already baked into the company's updated guidance.
Hormel Names New CFO
Earlier this week, Hormel appointed Ash Bhumbla as executive vice president and chief financial officer, effective Sept. 8. Interim CFO Paul Kuehneman will help Bhumbla during the transition and will remain a senior leader in Hormel's finance organization. Smooth handover, it seems.
Retail and International Sales Decline
Retail net sales fell 4%, and organic sales declined 3%. Volume dropped 9% on both a reported and organic basis. But not everything is gloom and doom: SPAM, Applegate, and Hormel chili recorded solid growth. Retail segment profit fell 4%, hurt by lower commodity turkey and private-label snack nut sales.
International net sales declined 5%, with organic sales down 4%. Volume dropped 11%. Branded export demand remained resilient, though a one-time legal entity transition affected some SPAM export sales. International segment profit plunged 254% due to a noncash impairment charge, but adjusted segment profit was flat. So, the underlying business wasn't as bad as the headline number suggests.
Foodservice Extends Growth Streak
Foodservice was the bright spot. Net sales and organic sales both rose 2%, marking the segment's 12th straight quarter of organic sales growth. Premium prepared proteins, branded pepperoni, and Jennie-O turkey drove the increase. Austin Blues, Hormel Natural Choice, and Hormel Fire Braised also performed well. Volume declined 1%, but segment profit increased 3%, supported by higher sales and favorable pork costs.
Updates Fiscal 2026 Outlook
During the third-quarter earnings call on Thursday, Ghingo painted a picture of a consumer under pressure. He said shoppers are becoming more deliberate with their spending and increasingly seeking value. Cumulative inflation and higher fuel costs are straining household budgets, and the company doesn't expect a meaningful near-term improvement. Consumer conditions are likely to remain choppy in the coming months.
Hormel raised its fiscal 2026 adjusted earnings forecast to $1.45 to $1.51 per share from $1.43 to $1.51. The consensus estimate is $1.50 per share. But the company lowered its annual sales outlook to $12.1 billion to $12.2 billion from $12.2 billion to $12.5 billion. Analysts expect $12.26 billion. It still expects organic net sales growth of 1% to 2% in fiscal 2026.
So, the takeaway? Hormel is managing costs and margins well, but the consumer environment is tough. And when a company that sells Spam and chili says consumers are strained, you know it's real.
