Hormel Foods Readies for Q3 Earnings: What's in the Offing?

Hormel Foods (HRL) is projected to report third-quarter fiscal 2025 revenues of $2.98 billion, a 2.7% year-over-year increase, and earnings per share of 41 cents, up 10.8%, when it releases results on August 28. Growth is expected to be driven by strong demand in its Foodservice segment, anticipated to achieve mid-single-digit sales growth, and momentum in the Retail segment. However, increased operational spending, difficult year-over-year comparisons, and ongoing turkey supply chain pressures are noted headwinds. Despite a historical negative earnings surprise trend, Zacks' model predicts Hormel will beat earnings this quarter, citing a positive Earnings ESP.

Analysis

Hormel Foods (HRL) is approaching its third-quarter fiscal 2025 earnings report with consensus estimates pointing to top-line growth of 2.7% to $2.98 billion and a significant 10.8% increase in earnings per share to 41 cents. The primary growth driver is expected to be the Foodservice segment, for which management has guided mid-single-digit net sales growth, supported by strong customer relationships and a differentiated product portfolio. Further contributions are anticipated from low single-digit growth in the Retail segment and continued strength in the International business, alongside benefits from the company's 'Transform and Modernize' initiative. However, this positive outlook is tempered by notable headwinds. The company faces margin pressure from increased spending on talent, technology, and brand support. Additionally, it must contend with a difficult year-over-year comparison from strong prior-year performance and ongoing supply chain challenges, specifically within the turkey market due to avian illness. Despite a trailing four-quarter average negative earnings surprise of 1.2%, a quantitative model from Zacks predicts an earnings beat, citing a positive Earnings ESP of +0.61%, creating a point of contention for investors to watch.

Key Decisions for Investors

• Investors should monitor the reported growth in the Foodservice segment closely, as its performance relative to the guided mid-single-digit growth will be a key determinant in Hormel meeting or exceeding revenue expectations.
• Pay close attention to management's commentary on profit margins and any guidance revisions, as increased operational spending and turkey supply chain pressures pose significant risks to the projected 10.8% EPS growth.
• Given the conflict between the positive quantitative model prediction and the company's recent history of negative earnings surprises, it may be prudent to wait for the official results and forward-looking guidance before adjusting positions.