Hormel stock drops as food company grapples with high cost of meat

Hormel Foods’ stock sank to a 10-year low Thursday morning as soaring pork and beef costs hit the bacon-and-pepperoni manufacturer this summer.

A 30% rise in the cost of pork bellies and record beef prices prompted the Austin, Minn.-based company to slice its earnings outlook for the second time this year — despite strong sales growth from brands like Planters, Jennie-O ground turkey and Herdez salsas.

Investors responded by bringing Hormel’s stock price down 13% to close at $25.22 on Thursday.

Hormel will raise some prices to cover the growing cost to make its products — a tough proposition given an already cautious consumer base.

“We have to balance what is happening with the cost of goods,” said Hormel president John Ghingo. “But we have to be very mindful of consumers, what they’re willing to pay and our brand strength.”

Ghingo said the “cumulative effect of inflation is really straining consumers.”

The Spam producer is also trying to cut its own expenses. This week, it announced 135 workers were laid off at a plant in Georgia and bacon production would be moved elsewhere.

“We’ll keep looking at our portfolio for where we can scale and be efficient,” she said.

CEO Jeff Ettinger said “everything is on the table” when it comes to keeping costs in check, including staffing levels.

The company is in the midst of a multiyear initiative to “transform and modernize,” focused on long-term growth. With the ongoing cost increases and tighter profit margins, analysts now question if the Hormel can achieve its original three-year earnings target.

“Consumer and commodity headwinds now put this clearly out of reach,” wrote Piper Sandler analyst Michael Lavery.

It was an otherwise upbeat quarter that ended in July, with rising sales and volumes, or pounds of food sold. Revenue rose 4.6% to $3 billion, and volume was up nearly 3% compared with the third fiscal quarter of last year.

“We see our sweet spot as adding value to our proteins,” he said. “We need to understand what consumers need and how we can help them solve problems.”

To that end, Smiley said, the company’s ongoing transformation initiative will continue to emphasize innovation.

“One of the places we’re not going to cut and fall short on is our continued investment in our people,” she said.

While overall profits ticked up 4%, earnings were well short of company and Wall Street expectations. Profits for the retail, food service and international segments dropped a combined 3.4%.