Hormel Foods's (NYSE:HRL) Q1 Sales Top Estimates, Full-Year Sales Guidance Is Optimistic
Packaged foods company Hormel (NYSE:HRL) beat analysts' expectations in Q1 FY2024, with revenue flat year on year at $3.00 billion. The company's full-year revenue guidance of $12.35 billion at the midpoint also came in 1.4% above analysts' estimates. It made a non-GAAP profit of $0.41 per share, improving from its profit of $0.40 per share in the same quarter last year.
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Hormel Foods (HRL) Q1 FY2024 Highlights:
Revenue: $3.00 billion vs analyst estimates of $2.91 billion (2.8% beat)
EPS (non-GAAP): $0.41 vs analyst estimates of $0.34 (20.4% beat)
The company reconfirmed its revenue and EPS guidance for the full year
Free Cash Flow of $356.8 million, up 64.1% from the previous quarter
Gross Margin (GAAP): 17%, up from 16.7% in the same quarter last year
Sales Volumes were up 4% year on year
Market Capitalization: $16.86 billion
Best known for its SPAM brand, Hormel (NYSE:HRL) is a packaged foods company with products that span meat, poultry, shelf-stable foods, and spreads.
Packaged Food
Packaged food stocks are considered resilient investments because people always need to eat. These companies therefore can enjoy consistent demand as long as they stay on top of changing consumer preferences. But consumer preferences can be a double-edged sword, as companies that aren't at the front of trends such as health and wellness and natural ingredients can fall behind. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.
Sales Growth
Hormel Foods is one of the larger consumer staples companies and benefits from a well-known brand, giving it customer mindshare and influence over purchasing decisions.
As you can see below, the company's annualized revenue growth rate of 7.8% over the last three years was decent for a consumer staples business.
This quarter, Hormel Foods reported decent year-on-year revenue growth of 0.9%, and its $3.00 billion in revenue topped Wall Street's estimates by 2.8%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Hormel Foods's average quarterly sales volumes have shrunk by 5% over the last two years. This decrease isn't ideal because the quantity demanded for consumer staples products is typically stable.
In Hormel Foods's Q1 2024, sales volumes jumped 4% year on year. This result was a well-appreciated turnaround from the 11.8% year-on-year decline it posted 12 months ago, showing the company is heading in the right direction.
Key Takeaways from Hormel Foods's Q1 Results
We enjoyed seeing Hormel Foods exceed analysts' gross margin expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. While raising guidance after beating a quarter is always icing on the cake, Hormel's maintenance of guidance shows that it's staying on track. Overall, we think this was a really good quarter that should please shareholders. The stock is up 4.8% after reporting and currently trades at $32.28 per share.
Hormel Foods may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
