HRL Q2 Deep Dive: Commodity Inflation Weighs on Profits Despite Broad-Based Sales Gains

Packaged foods company Hormel (NYSE:HRL) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 4.6% year on year to $3.03 billion. On the other hand, next quarter’s revenue guidance of $3.2 billion was less impressive, coming in 1.4% below analysts’ estimates. Its non-GAAP profit of $0.35 per share was 15% below analysts’ consensus estimates.

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StockStory’s Take

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.”

Looking ahead, Hormel’s updated guidance reflects ongoing caution about persistent input cost inflation and the timing lag of pricing actions. Management expects margin recovery to be gradual, with most benefits materializing next year. Smiley emphasized that “additional pricing at this point would largely impact 2026,” and Ghingo explained that the consumer’s ability to absorb further price increases remains a constraint. The company plans to provide more comprehensive 2026 guidance next quarter, while focusing on disciplined cost management, measured pricing, and continued investment in flagship and rising brands.

Key Insights from Management’s Remarks

Management attributed the quarter’s top-line growth to strong demand in protein-centric categories, but called out inflation-driven margin pressure and slower-than-expected profit recovery in Planters and Foodservice.

• Protein portfolio strength: Hormel’s flagship protein brands, including Jennie-O ground turkey, Spam, and Hormel Pepperoni, drove robust sales, benefiting from long-term consumer demand for lean and affordable protein. Management highlighted that ground turkey sales were up 13% and outpaced category growth, with the company gaining market share.

• Planters recovery uneven: The Planters brand returned to growth in distribution and dollar sales following last year’s supply challenges. However, profit recovery lagged, as mix and inflation offset top-line gains. Management is focusing on innovation, such as Nut Duos and flavored cashews, and capacity readiness to support ongoing sales recovery.

• Foodservice resilience challenged: While Hormel’s foodservice business outperformed the broader industry in terms of volume and net sales growth, industry-wide softness in traffic and ongoing inflation led to margin compression. The company cited strong performance in premium pepperoni and turkey, but noted that convenience store channel weakness pressured mix and profitability.

• International growth led by China: Hormel’s China business delivered solid growth across both foodservice and retail, with new snacking innovations like Skippy cones expanding distribution. However, profitability in international markets was affected by ongoing challenges in Brazil, where competitive pricing eroded margins.

• Transform and modernize initiative: Hormel’s company-wide cost and process optimization program delivered incremental benefits and included manufacturing footprint changes. Projects such as facility closures and production reallocations are expected to drive long-term efficiencies, with management reaffirming the initiative’s $100-$150 million incremental benefit target for the year.

Drivers of Future Performance

Hormel’s outlook is shaped by persistent input cost headwinds, measured pricing actions, and sustained investment in high-potential brands and operational efficiency.

• Commodity inflation persists: Management expects input costs, especially in pork and beef, to remain elevated, continuing to pressure margins through the end of the year. CFO Jacinth Smiley noted that, even if input prices decline seasonally, inventory built at higher costs will delay margin recovery.

• Lag in pricing realization: The timing lag between commodity cost increases and the ability to implement retail pricing remains a drag on near-term profitability. CEO Jeff Ettinger and President John Ghingo emphasized that further pricing actions are under evaluation but will only partially benefit the next quarter, with the bulk of the impact expected in 2026.

• Disciplined brand investment: Hormel is prioritizing marketing and innovation support for its flagship and rising brands, such as SPAM, Hormel Pepperoni, and Jennie-O, to sustain sales momentum and defend market share. The company is also exploring SG&A cost reductions and operational improvements to help offset inflationary pressures.

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 $25.40, down from $29.01 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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