HRL Q3 Deep Dive: Margin Pressures and Cost Initiatives Set Stage for 2026 Reset

Packaged foods company Hormel (NYSE:HRL) missed Wall Street’s revenue expectations in Q3 CY2025 as sales only rose 1.5% year on year to $3.19 billion. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $12.35 billion at the midpoint. Its non-GAAP profit of $0.32 per share was 6% above analysts’ consensus estimates.

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StockStory’s Take

Hormel Foods’ third quarter saw a positive market reaction despite revenue falling below Wall Street’s expectations, as investors focused on the company’s stronger than anticipated non-GAAP profit. Management highlighted persistent input cost inflation, particularly in pork and beef, as a major headwind, which weighed on margins and sales volumes. Interim CFO Paul Keenan acknowledged, “Profit was challenged this year, and value-added growth was more than offset by year-over-year margin pressures related to higher commodity input costs, supply chain impacts of avian illnesses, and some discrete items.” The company’s protein-forward brands like Jennie-O and Planters provided some stability, but discrete events including a product recall and facility fire further pressured results.

Looking ahead, Hormel Foods’ guidance for 2026 is shaped by expectations for continued input cost volatility, particularly in beef and nuts, alongside benefits from recent restructuring and ongoing productivity initiatives. Enhanced marketing support for core brands, ongoing portfolio reshaping, and further cost savings from the transform and modernize initiative are central to the outlook. President John Ghingo stated, “We are focused on winning in attractive consumption spaces by positioning our brands and innovation where they have the most significant opportunities and prioritizing our resources to fuel growth.” Management also flagged a cautious consumer environment and only modest anticipated improvement in food service demand as factors influencing next year’s performance.

Key Insights from Management’s Remarks

Management cited ongoing inflation in commodity inputs, operational disruptions, and targeted portfolio adjustments as key drivers of recent results and future strategy.

• Commodity cost inflation: Management reported sustained high input costs, especially for pork and beef, which drove a significant decline in operating margin. The retail and food service segments both experienced pressure, as pricing actions were unable to fully offset cost increases within the quarter.

• Operational disruptions: Two notable incidents—a chicken product recall and a fire at the Little Rock facility—negatively affected profitability in the quarter. CFO Paul Keenan quantified these as having a combined 3¢ negative EPS impact for the year, compounding existing margin headwinds.

• Portfolio reshaping: Hormel made deliberate moves to streamline its brand and product mix, exiting private label nut lines and announcing a strategic partnership for the Justin’s brand. Management emphasized these steps as part of a longer-term effort to focus on core protein-centric brands and improve operational efficiency.

• International segment variability: The China business delivered solid growth and profitability, but challenges in Brazil and commodity-driven export softness limited international progress. Leadership indicated portfolio review in underperforming regions will continue.

• Cost reduction initiatives: The company completed a significant corporate restructuring, reducing about 9% of corporate and sales staff. Savings from this action are set to be reinvested into marketing and technology, with the goal of supporting strategic growth brands and offsetting inflationary pressures.

Drivers of Future Performance

Hormel Foods’ outlook for 2026 is underpinned by cost discipline, ongoing portfolio optimization, and targeted investments in core brands, while accounting for continued volatility in input costs and consumer demand.

• Pricing and cost management: Management expects previously implemented pricing actions to better align with input costs in 2026, particularly as pork costs moderate and productivity from the transform and modernize initiative continues. However, beef and nut costs remain elevated, and any relief may be offset by persistent inflation in these areas.

• Marketing and brand investment: The company will increase marketing and advertising support for strategic brands such as Planters, SPAM, and Jennie-O, aiming to drive mix improvements and market share gains. Management believes that these efforts are essential to supporting pricing actions in a value-conscious consumer environment.

• Portfolio simplification: Ongoing divestitures and strategic partnerships are designed to concentrate resources on higher-growth, protein-centric categories. Leadership indicated that further reviews of international holdings, especially in underperforming markets like Brazil, could result in additional changes to the business portfolio.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will monitor (1) the effectiveness of Hormel’s pricing actions in offsetting stubborn input cost inflation, (2) the pace and impact of restructuring savings and reinvestment into key brands, and (3) signs of sustained volume growth, especially in retail and international segments. Progress on portfolio simplification and expansion of value-added protein products will also be important indicators of future performance.

Hormel Foods currently trades at $24.13, up from $23.43 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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