Yahoo Finance Foodservice Demand Aids Hormel Foods (HRL), High Costs Ail
Hormel Foods Corporation HRL is capitalizing on the increasing demand for Foodservice products. The leading food company’s emphasis on its six strategic priorities is remarkable. In addition, Hormel Foods has been enhancing its business through strategic acquisitions. However, the company is not immune to a rising cost environment.
Let’s delve deeper.
Foodservice: A Catalyst for Growth
Hormel Foods’ long-standing relationships, differentiated product portfolio, innovative solutions and impressive sales team are fueling growth in the Foodservice business. These trends continued in second-quarter fiscal 2024, with net sales in the Foodservice segment increasing 5.7% to roughly $932 million, with volumes up 2.9%. Strength in the turkey, bacon and premium prepared proteins categories backed the upside.
Hormel Foods is confident that its Foodservice division is uniquely poised to foster category expansion, enhance brand value, and strengthen relationships with operators well into the foreseeable future. The company uses its highly differentiated business model to innovate and address operator challenges, introducing disruptive products. Management anticipates continuing to see consistent volume growth driven by bacon, turkey, pizza toppings and its range of premium prepared proteins in the food service business.
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Focus on Strategic Priorities
Hormel Foods is on track with its six strategic priorities, which include enhancing its focus and fueling growth in the Retail unit, reinforcing leadership in Foodservice, pursuing solid global expansion, implementing the enterprise entertaining & snacking vision, emphasizing the One Supply Chain initiative and continuing the ongoing transformation and modernization of the business.
With regard to transformation and modernization initiatives, the company is focused on supply chain efficiency, portfolio optimization and data and analytics. In the plan work stream, management is implementing a new end-to-end planning process and is integrating new planning technology. Under the buy work stream, it is realizing the benefits of new procurement and productivity programs. Within the make work stream, the company is standardizing the ways of working across the manufacturing network. In the Move work stream, Hormel Foods has deployed analytics throughout our refrigerated network to improve service levels even further. The company’s focus on such initiatives remains vital to projected growth in the coming years.
Expansion Efforts
Hormel Foods intends to strengthen its business on the back of strategic acquisitions. In the fourth quarter of fiscal 2022, the company announced its acquisition of a minority stake in Indonesia-based food and beverage company PT Garudafood Putra Putri Jaya Tbk. The move helps Hormel Foods expand its presence in Indonesia and Southeast Asia. On Jun 7, 2021, the company acquired the Planters snacking portfolio. Management acquired a Texas-based pit-smoked meats company, Sadler's Smokehouse (March 2020). The buyout has been strengthening its position in the foodservice space. These buyouts are expected to continue boosting performance in the forthcoming period.
What’s Hurting Hormel Foods?
Hormel Foods has been battling rising costs for a while now. In the second quarter of fiscal 2024, the company’s selling, general and administrative (SG&A) expenses amounted to $266.7 million, an increase from $212.5 million in the year-ago period. The downside was caused by higher expenses related to employees and increased external costs attributed to investments in the Transform and Modernize Initiatives.
The company's SG&A expenses are expected to increase in the second half of fiscal 2024 primarily due to higher expenses related to the Transform and Modernize initiative and increased compensation costs. In its last earnings call, management also stated that it expects to see increased advertising spending for the remainder of the year as it continues to promote top brands in the market through new advertising strategies. A rise in such costs is likely to put pressure on the company’s profits.
Despite the positives mentioned above, it is to be seen if Hormel Foods can navigate through its challenges successfully. The company’s shares have decreased 13.2% in the past three months compared with the industry’s 5.3% decline.
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