Hormel Foods (HRL) fine-tunes biz strategy to beat challenges. Is the stock a buy?

For consumer staples companies, rising inflation is probably turning into a bigger challenge than the virus-induced supply chain disruption and store closures. After bettering its position since the early months of the pandemic, Hormel Foods Corporation (NYSE: HRL), which produces and distributes consumer-brand meat and food products, has shifted focus to pricing and portfolio expansion.

Shares of the Austin-based company, which owns popular brands like Wholly Guacamole, SPAM, Skippy, and Hormel, had gained steadily in the first half of the year, but changed course later and started dropping. The company’s mixed third-quarter earnings report added to the downturn and the stock hit a two-year low, before regaining a part of the lost momentum.

Buy HRL?

Though the stock has become less expensive now, the volatile market conditions and lingering headwinds should be taken into consideration before investing. It would be a good idea to put selling/buying decisions on hold for the time being. Meanwhile, income investors would be keeping HRL in their watch lists, since the management has raised the dividend on a regular basis in recent years.

The company’s performance improved considerably since the early phase of the crisis, with sales even surpassing the pre-pandemic levels at one point. The positive momentum can be linked to the successful integration of the Planters business, which joined the Hormel fold early this year, and efforts to ramp up the portfolio – with a focus on healthier snacks.

What’s in Store

The Planters’ business can become a key growth driver going forward because the brand complements Hormel’s business model. The food-service and snacking segments should continue to benefit from the reopening of restaurants, relaxation of travel restrictions, and resumption of outdoor gatherings.

But the resurgence of coronavirus infections and the emergence of new variants like omicron, combined with deepening inflation pressure and supply chain issues, paint a grim picture of the food retail business for the near term. In the case of Hormel Foods, the situation calls for prudent pricing actions and tweaking of the product mix.

Hormel Foods will be publishing its fourth-quarter 2021 results on December 9, before the opening bell. Experts, in general, are bullish on the company’s performance in the final months of the year. They expect earnings to increase 16% to $0.50, on revenues of $3.22 billion, which is up 33% year-over-year.

Record Sales

Earnings performance has been mixed over the past several quarters, with the pandemic-related disruption often impacting operations negatively. In the quarter ended July 2021, net sales moved up 20% year-over-year to an all-time high of $2.86 billion and topped Wall Street’s expectations. Consequently, adjusted earnings rose 5% to $0.39 per share, which was broadly in line with the estimates.

Hormel Food’s stock traded slightly higher in the early hours of Monday’s session, extending last week’s uptrend. Over the past twelve months, HRL has lost about 8%.