Hormel Foods’ second quarter results were met with a negative market reaction, as higher than expected commodity costs sharply undermined profitability. Management identified three key drivers behind the disconnect between top-line and bottom-line performance: broad-based sales growth across all segments, persistent inflation in pork and beef inputs, and lagging profit recovery in key brands such as Planters. Interim CEO Jeff Ettinger called the margin impact of commodity surges “disappointing,” while CFO Jacinth Smiley described the unexpected cost pressures as significantly worse than anticipated, noting, “Collectively, we experienced approximately 400 basis points of raw material cost inflation in the third quarter alone.”
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Hormel Foods (HRL) Q2 CY2025 Highlights:
- Revenue: $3.03 billion vs analyst estimates of $2.98 billion (4.6% year-on-year growth, 1.7% beat)
- Adjusted EPS: $0.35 vs analyst expectations of $0.41 (14.6% miss)
- Adjusted EBITDA: $322.3 million vs analyst estimates of $367 million (10.6% margin, 12.2% miss)
- Revenue Guidance for Q3 CY2025 is $3.2 billion at the midpoint, below analyst estimates of $3.25 billion
- Management lowered its full-year Adjusted EPS guidance to $1.44 at the midpoint, a 11.7% decrease
- Operating Margin: 7.9%, in line with the same quarter last year
- Sales Volumes rose 2.7% year on year (-6.9% in the same quarter last year)
- Market Capitalization: $13.94 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Hormel Foods’s Q2 Earnings Call
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Ben Theurer (Barclays) asked how expectations shifted so drastically in the past three months. President John Ghingo cited an unexpected surge in commodity costs and underwhelming foodservice traffic as key drivers of the profit shortfall.
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Tom Palmer (JPMorgan) questioned the company’s assumptions for seasonality in commodity prices and impact on margins. CFO Jacinth Smiley clarified that even if input costs decline, existing high-cost inventory will limit margin benefit in the near term.
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Leah Jordan (Goldman Sachs) pressed for details on retail pricing power and elasticity. Ghingo explained that pricing is selectively implemented, with timing lags and consumer sensitivity requiring a disciplined approach to avoid harming brand health.
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Peter Galbo (BofA) asked about the timing of price-cost parity and whether system visibility issues contributed to the magnitude of the margin miss. Smiley responded that inventory builds were intentional to meet customer demand, not a visibility problem, and that price-cost recovery will lag so long as input costs remain high.
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Erica Eilah (Oppenheimer) questioned whether Hormel can restore double-digit operating margins. CEO Jeff Ettinger said the company is focused on mix improvement, cost controls, and operational efficiencies, but stopped short of committing to a timeline for margin restoration.
Catalysts in Upcoming Quarters
Heading into the next few quarters, the StockStory team will watch (1) the pace and effectiveness of targeted pricing actions across Hormel’s core retail and foodservice categories, (2) whether input cost inflation in pork, beef, and nuts begins to moderate and allow margin recovery, and (3) the progress of the transform and modernize initiative in delivering sustainable cost savings and operational efficiencies. Progress on international market profitability and successful execution of innovation in brands like Planters and SPAM will also be key areas to monitor.
Hormel Foods currently trades at $25.41, down from $29.01 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).
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