Hormel Foods (HRL): Ecommerce, innovation and investments to drive growth going forward

The food industry saw mixed results during the COVID-19 pandemic as demand spiked for processed foods and ready-to-eat meals while the foodservice side suffered declines due to stay-at-home orders and other restrictions.

Hormel Foods Corp. (NYSE: HRL) saw this trend reflect in its performance for the most recent quarter. The company witnessed strong momentum in its retail channel while its foodservice segment saw sharp declines. Since all four of the company’s segments have sales into the foodservice channel, this took a toll on its overall performance with sales decreasing 3%.

Hormel has benefited from its strategy of innovation. The company now generates 15% of its sales from new products and this momentum continued through the pandemic with products like SKIPPY peanut butter squeeze packs, Hormel Cup N’ Crisp pepperoni and Herdez salsa cremosas contributing to growth in new product sales.

Growth drivers

Hormel saw increases in sales, household penetration, buy rates and repeat rates for its retail products. This was driven by the rising trend of eating at home as opposed to dining out which was prevalent during the health crisis.

The pandemic brought back the traditional family dinner as people spent more time at home. This trend is expected to continue and it has generated demand for products that are convenient to prepare. Hormel has a portfolio of brands that meet this demand and have been seeing growth. This growth is expected to continue even after the pandemic subsides.

Hormel is seeing strong growth in ecommerce with market share gains in its biggest categories as the trend of ordering food online has seen a strong pickup. The company continues to invest in this channel and is seeing growth in this space.

Hormel will also benefit from the investments made in increasing capacity. The company’s facility in Iowa will help it expand capacity for pizza toppings which will prove beneficial as the demand for pizza has remained strong during the pandemic. Hormel’s new dry sausage production facility in Nebraska and additional investments for pepperoni capacity will help drive growth in retail and foodservice.

Outlook

Looking into fiscal year 2021, Hormel expects to see continued growth in its retail business although at a slower rate than 2020. The foodservice industry is also expected to see a recovery but growth is not likely to reach the levels seen in 2019.

In terms of the outlook for the industry, the USDA projects domestic pork production to increase by 1% in 2021. Hormel expects hog prices to rebound significantly and believes it will have access to ample raw materials in pork through its supply contracts. The company expects lower commodity prices for turkey next year and believes the recovery in the foodservice industry will benefit turkey markets.

Click here to read the full transcript of Hormel Q4 2020 earnings conference call