Shares of Hormel Foods Corp. (NYSE: HRL) were up 2.5% on Wednesday. The stock has gained 20% over the past three months and over 6% in the past one month. The company reported its first quarter 2022 earnings results a day ago with revenue beating expectations and earnings coming in line with estimates.
Sales increased 24% year-over-year to $3 billion while earnings rose 7% to $0.44 per share. The results benefited from strength in the Refrigerated Foods and Jennie-O Turkey Store segments as well as the addition of the Planters snack nuts business. Gross margin declined due to increases in freight expenses and supply chain disruptions in the quarter.
Hormel has outlined a number of strategic priorities that it will focus on in order to drive top and bottom-line growth through fiscal year 2022. Let’s take a look at them:
Foodservice
During the first quarter, sales in the Foodservice channel increased 51% from last year. The company’s product portfolio and sales force helped drive improvement across most of the categories in foodservice. The demand for food away from home remains strong and the foodservice industry continues to gain traction.
Foodservice sales have grown at an average rate of around 25% over the trailing 12-month period. Positive trends within the foodservice industry coupled with the demand for its products in the US gives Hormel optimism over the health of this industry. The company will focus on expanding its position in this industry to drive growth.
Core brands
The second priority is to grow core brands. Hormel’s retail business posted a 17% growth in sales during Q1. The company is seeing strong demand for its key brands such as SPAM, SKIPPY, WHOLLY, and Jennie-O. Products such as Applegate meats and Hormel Gatherings helped drive retail and deli sales within the Refrigerated Foods segment.
The company’s brand value has helped it drive household penetration and share growth in many of its categories. Hormel continues to invest significantly to support its brands and it is implementing strategic pricing actions to tackle inflation.
Global presence
Hormel’s third priority is to expand its global presence. The company faced some pressures in its international business during the first quarter, including demand softness in China and headwinds in its export business due to port congestion and limited railcar availability. Despite this, Hormel sees opportunity for long-term growth in its international business.
Demand for global brands such as SPAM and SKIPPY are expected to drive growth in Hormel’s export business as well as its foodservice and retail businesses in China. The company’s partnerships in the Philippines, South Korea, Europe and Indonesia are also expected to drive its international expansion.
Snacking & entertaining/Ethnic and Food Forward
Another priority is to drive growth in the snacking and entertaining category as well as the ethnic and Food Forward portfolios. Within snacking and entertaining, Hormel has a strong portfolio of brands across salsa, guacamole, nut butters, nuts and premium deli meats. The Planters business, which is performing at the high end of expectations, is a key part of the snacking platform and the company plans on rolling out many new products under this brand.
The MegaMex and Applegate businesses are seeing good growth within the ethnic and Food Forward portfolios. Strong demand for WHOLLY products in retail helped drive sales and volume growth for MegaMex while demand for products such as breaded chicken, breakfast sausage and sliced meats drove momentum for Applegate. Hormel is working on improving its product portfolio to meet the changing needs of customers.
Company transformation
Hormel is working on modernizing its organization to drive growth. These efforts include the transformation of its Jennie-O Turkey Store business and its One Supply Chain initiative. The company is investing in the Jennie-O brand to drive growth in its most profitable and high-growth product lines in retail and foodservice.
In addition, the company is bringing changes to its Jennie-O supply chain which has been run separately from the rest of the supply chain to date. From FY2023, Hormel will leverage its One Supply Chain capabilities to integrate all facilities into the broader Hormel Foods network. These efforts are expected to make the company more efficient.
Hormel expects net sales to range between $11.7-12.5 billion and EPS to range between $1.87-2.03 for FY2022.
Click here to read the full transcript of Hormel’s Q1 2022 earnings conference call