Three factors that could drive growth for Hormel (HRL) going forward

Shares of Hormel Foods Corp. (NYSE: HRL) have gained 6% thus far this year. The company saw net sales increase 8% year-over-year to $2.6 billion in the second quarter of 2021 helped by sales growth in the foodservice channel and strong demand in the retail and deli channels. This momentum allowed the company to raise its sales outlook for the full year to a range of between $10.20-10.80 billion. These three factors can be expected to drive growth for the company in the coming months:

Recovery in foodservice

Hormel witnessed a strong recovery in its foodservice business, which recorded a sales increase of 28% during the second quarter. This was up 1% from the pre-pandemic levels in 2019. Products such as Hormel Fire Braised Meats, Fontanini Italian meat, and Hormel’s full cooked bacon Hormel Bacon 1 saw strong demand. Pizza toppings, which saw strong growth even before the onset of the COVID-19 pandemic, continued its momentum during Q2. The company has made significant investments in capacity to meet the ongoing demand in this category.

The strength in the foodservice channel drove sales growth across the company’s segments. Within Refrigerated Foods, sales rose 17%, led by demand for the Fontanini and Bacon 1 brands as well as pizza toppings.

Within the International segment, foodservice volumes in China returned to pre-pandemic levels, fueled by growth in pizza toppings and bacon items. The recovery in foodservice and higher whole bird sales drove a 2% sales growth in Jennie-O Turkey Store, with demand for products such as lean ground turkey staying above pre-pandemic levels.

Hormel remains optimistic about the foodservice business for the remainder of the year. The company believes that the reopening of schools and colleges during the fall should benefit its Refrigerated Foods and Jennie-O Turkey Store segments. Hormel is confident that it has the inventory and capacity necessary to meet the demand and gain share as the recovery continues.

Product innovation

Hormel is introducing new products that are driving growth. The company is seeing good growth in the salsa category through its Herdez brand with products such as Herdez’s Guacamole Salsa, Taqueria Street Sauces and Salsa Cremosas. It recently introduced the Herdez Avocado Hot Sauce, thereby entering the hot sauce market. The company is seeing demand for avocado products and its recently-launched Wholly Smashed and Wholly Diced Avocado offerings are driving growth in the Wholly brand.  

Hormel is also investing in plant-based offerings and it is seeing growth in its plant-based pepperoni and crumbles products. The company is seeing good growth in the plant-based toppings category and believes it is well-positioned to take advantage of this trend as its additional capacity rolls out at the beginning of FY2022.

Strength in retail

Hormel saw strong demand continue in its retail business. Demand was higher than pre-pandemic levels and total retail sales in Q2 were flat compared to last year even as the company lapped the period of pandemic-related pantry overstocking. Brands such as SPAM, Applegate, Herdez and Wholly led the growth in retail.

Hormel saw large gains in household penetration, improvements in overall buy rates, and an expansion in cross-purchasing across brands within its retail business. The company expects demand to remain high in the retail channel for the rest of the fiscal year and believes it will benefit from the actions taken on pricing, increasing capacity and improving the supply chain.

Click here to read the full transcript of Hormel Foods Q2 2021 earnings conference call