James Snee, chief executive officer of Hormel Foods (HRL), said during the company’s quarterly earnings call on Friday that as the unemployment rate has risen, so has demand for items that fall into its center store grocery products category, which includes Spam canned meat, Skippy peanut butter and Hormel brand canned chili.
“We know our center store brands are perfectly suited for value consumers who need affordable, high-quality products for their families,” said Snee. Center store refers to items found in the middle aisles of the grocer including canned goods.
Hormel reported an 8% jump in net sales of items in this category to $683.3 million in the fiscal second quarter. Overall, the company recorded the highest net sales quarterly total in its history at $2.4 billion, an increase of 3%. Pre-tax earnings dropped 10%, however, to $286 million, as the company paid a higher tax rate than it did in 2019. Cash flow from operations was $360 million, up 102%; lower levels of inventory and accounts receivable drove the majority of the increase.
“With millions of Americans now unemployed, our shelf-stable products are as important to consumers as they’ve ever been.”
Hormel saw its foodservice business decline by 21% as restaurants across the country shut down due to Covid-19. Foodservice comprised about 40% of total sales before the coronavirus pandemic, said Snee.
In a recent note, Piper Sandler analyst Michael Lavery downgraded Hormel Foods from Overweight to Neutral with a price target of $47. Lavery commented, “As restaurant headwinds now look likely to persist, we expect foodservice declines to more than offset stronger retail sales growth in 2020. There is a lot of uncertainty surrounding Covid-19, but our sales dissection by channel helps inform our estimates. Hormel is a high quality company with a strong long-term outlook, but we see little upside at current valuation.”
Hormel stock rose 2.1% in Friday trading to $46.93, and is up over 25% in the last year. TipRanks data shows that among 6 analysts, all 6 have rated Hormel a Hold. The analyst 12-month price target is $45.20, 4% lower than its $46.93 price. (See Hormel stock analysis on TipRanks)
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