Hormel stock pops after profit beat, as Planters business and volumes improve

The stock
HRL,
+4.82%
rose 5.4% in midday trading, after hovering just above five-year lows over the past week.

The stock’s gain also snaps a four-quarter streak of post-earnings declines, as the stock had dropped by an average of 4.7% the day after the past four earnings reports, according to FactSet data.

Sales fell 3.8% to $2.98 billion, below the FactSet consensus of $3.06 billion, as retail sales were down 4.2% to $1.92 billion, foodservice sales slipped 3.1% to $881.4 million and international sales declined 3.2% to $180.0 million.

Gross margin contracted to 16.5% from 17.8%, as the company addressed its excess-inventory situation by selling off non-productive inventory, slowing manufacturing in areas that supplied exceeded demand and bringing outside production back into the company’s own facilities.

“As anticipated, these actions had a margin impact during the quarter, but were necessary to bring inventory levels into greater balance,” Chief Executive Officer Jim Snee said, according to an AlphaSense transcript of the post-earnings conference call with analysts.

Volume fell 5.6%, with retail volume down 7.1%, foodservice volume off by 1.3% and international volume down 3.8%. But that showed significant improvement from a year ago, when total volume dropped 11.8%, with retail down 13.4% and foodservice off by 6.0%.

In foodservice, volume growth in sliced meats, pizza toppings and premium breakfast sausages was more than offset by a drop in turkey volume and lower pricing, in categories including bacon.

In the previous quarter, the company said its Planters business, which it acquired in mid-2021, was off to a slower-than-expected start to the year, for reasons including general category weakness, consumers shifting away from certain higher-priced items and production challenges.

For Q2, the Planters brand saw shipments increase 8% for the quarter, as the company took a number of actions to improve the business, including boosting promotions, introducing “much-needed innovation” with flavored cashews and new corn nuts varieties and regaining distribution and placements for the brand.

“While early, data for the latest 13-week period on a volume basis indicates that the Planters brand is outpacing the packaged nuts and seeds category and is showing positive takeaway growth for peanuts and cashews,” said Snee. “This summer, we are also running a national campaign for our new flavored cashews to maintain momentum for this business.”

Looking ahead, the company expects sales and earnings growth in the second-half of the year, leading the company to affirm its full-year outlook for EPS of $1.70 to $1.82 and for sales growth of 1% to 3%.

The stock has dropped 8.0% over the past three months, while the Consumer Staples Select Sector SPDR exchange-traded fund
XLP,
-0.11%
has gained 1.3% and the S&P 500 index
SPX,
+0.97%
has advanced 6.7%.