Hormel Foods Corp . (NYSE:HRL) turned in an earnings report on Thursday that left a bad taste in investors' mouths.
The company's stock price has dropped nearly 6% over the past two days of trading as a result. However, I'm still cautiously bullish on the food maker's futures.
Hormel overall has kept a fairly tight range in its share price. It generally closed between $42 and $52 for the last year. The current price is within that range, though closer to the lower end. (See Hormel stock charts on TipRanks)
Hormel posted adjusted earnings of $0.39 per share in Q3, which just nosed out expectations of $0.38 per share. Revenue also came in slightly above projections. Hormel posted $2.86 billion for the period, while a Zacks survey called for $2.69 billion.
While the Q3 numbers were reasonably sound, the company's future outlook wasn't so rosy. Hormel's guidance features full-year earnings between $1.65 and $1.69 per share. Full-year revenue projects to be between $11 billion and $11.2 billion.
The biggest reason behind the expected shortfall is higher costs. The company expects to lessen that impact with a combination of increased prices to consumers, and cost-cutting elsewhere within the company.
Wall Street's Take
Benjamin Theurer of Barclays (LON:BARC) is the only Wall Street analyst to have covered Hormel in the past three months. He assigned the stock a Hold rating, and a $46 price target, which implies 7.2% upside potential.
You've Got to Like a Versatile Food Maker
Wall Street analysts may be ignoring Hormel, but the company makes a solid case for itself. This is the business that made stocking up for the pandemic that much easier with its canned goods lineup.
Its second quarter featured a record $2.6 billion in sales thanks to recovery in the food service sector. Before that, Hormel used its One Supply Chain initiative to great effect.
Hormel's recent acquisition of the Planters brand helps too. Hormel isn't running the risk of stagnation; it has the brands customers want now. It's also moving to bring in brands customers will want later.
Plus, Hormel has a nice set of contingency plans. If the various COVID-19 variants lead to more lockdowns in the future, the same principles that gave Hormel an edge back in 2020 will likely hold true once more.
Concluding Views
Granted, Hormel has a bit of a fight on its hands. Commodity prices are steadily increasing. Supply chains are still struggling to recover from the pandemic. Labor is often tough to come by.
The struggles seen at Hormel are not unique. Most, if not all, of Hormel's competitors face the same issues. No one company will suffer more than the rest by these factors.
It's hard not to be bullish on Hormel. It sells food, after all. People need food to survive. That all but guarantees a certain amount of sales.
Better yet, it has a plan for all conditions. If restaurants stay open, Hormel is ready to sell. If restaurants must close again, Hormel can turn directly to the consumer with canned goods.
When a company has so many worthwhile contingency plans, even the most risk-averse investor can find something to like.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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