Hormel Foods Corporation (NYSE:HRL), a prominent manufacturer and marketer of various meat and food products, has encountered significant challenges related to supply-chain disruptions. These issues have arisen within an environment characterized by rising inflationary costs.
These challenges persisted into the third quarter of fiscal 2023, resulting in the company falling short of both revenue and earnings expectations outlined by the Zacks Consensus Estimate. Additionally, net sales experienced a year-over-year decline during this period, leading to a rather subdued outlook for the entire fiscal year 2023.
Supply-Chain Disruptions Impact Q3
Hormel Foods operates within a complex and high-cost environment, making it vulnerable to supply-chain bottlenecks. The third-quarter fiscal results for the company were adversely affected by issues in the International segment and disruptions in the supply chain. Net sales for the quarter declined by 2.3%, totaling $2,963.3 million. This decline was observed across all segments, with Retail, Foodservice, and International units reporting drops of 1.7%, 3%, and 6%, respectively.
The company’s adjusted operating income in the fiscal third quarter amounted to $286.8 million, representing a 1.5% decrease from the previous year. The supply-chain disruptions, stemming from a third-party logistics provider shutdown, resulted in shortages, increased logistical costs, and elevated distressed inventory levels.
Gloomy Outlook
The company anticipates ongoing challenges within the International segment, along with earnings pressure stemming from heightened competition in the Retail business, for the entirety of fiscal 2023. Moreover, Hormel Foods expects consumer spending in the United States to remain subdued due to the resumption of student loan payments.
For fiscal 2023, the company projects net sales to either decline by 4% or remain flat year over year. This outlook reflects the company’s performance to date and its expectations concerning raw material input costs in the fiscal fourth quarter. Adjusted earnings per share (EPS) for fiscal 2023 are expected to range from $1.61 to $1.67, down from the $1.82 reported in the previous year. The bottom line is likely to experience a year-over-year decline in the fiscal fourth quarter.
Market Performance
Shares of Hormel Foods, currently holding a Zacks Rank #5 (Strong Sell), have witnessed a 4.6% decline in the past three months, compared to the industry’s 2.4% decrease over the same period.
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