Hormel: A Potential Buy Despite Post-Earnings Decline

Key Points

• Hormel stock is down over 8% after a mixed earnings report, wiping out a good chunk of the stock’s year-to-date gains. 
• The company is still getting uneven performance across its brands and business units, but the issues are tied to the economy, not a systemic risk. 
• Long-term investors can buy shares at a discount and collect a high-yield dividend along the way. 

Hormel Foods Corporation NYSE: HRL stock investors are living the expression that what goes up must come down. HRL stock is down 8.8% in midday trading after the company posted mixed earnings. This movement is almost exactly opposite to the price movement in HRL stock after the company's previous earnings report in February 2023, when the stock gapped up sharply.  

Investors have seen much of their 2024 gains wiped away and may wonder what to do with Hormel stock, which is down 11% in the last 12 months. The answer may be to stay the course. This sharp price movement may be a technology-induced overreaction to a report that wasn't as bad as it may seem. 

Hormel's Earnings: Slight Decline but Beating Expectations

Hormel's revenue of $2.89 billion missed analysts' estimates of $2.97 billion, which was the same number the company had reported in the prior year. The company continues to show uneven performance across its multiple categories and brands.  

For example, the company reported volume growth in its food-service business but noted that those gains were offset by weakness in its international and retail businesses. The same was true with brands like Skippy, Spam, Planter's, and Hormel Black Label bacon, showing an increase in net sales that was offset by declines in other areas.  

However, the bottom line tells a different story. Although earnings were down two cents per share year over year, they did beat analysts' expectations by two cents per share. That makes it two consecutive quarters of better-than-expected earnings and increased operating cash flows.  

When it came to guidance, Hormel also had positive news to report. The company reaffirmed its outlook for net sales growth of between 1% and 3%. It also updated its expectations for diluted net earnings per share (EPS) to $1.45 to $1.55 (from $1.43 to $1.57). Plus, it increased its expectations for adjusted diluted EPS to a range between $1.55 and $1.65 (from $1.51 to $1.65).  

Is High-Frequency Trading to Blame for Hormel's Stock Volatility?

Investors see price action like what you're seeing in HML stock all the time. Stocks move like this due to high-frequency trading (HFT), which is guided by algorithms that look for keywords in a company's earnings report and can execute buy and sell orders at lightning speed.  

That looks to be part of what's happening with Hormel stock after earnings. Analysts have been bearish on Hormel for some time. The Hormel analyst ratings on MarketBeat give the stock a consensus rating of Reduce, which is equivalent to Sell.  

The bottom line for investors is that it wasn't going to take much bad news to confirm this negative sentiment.  

Why Hormel's High-Yield Dividend Makes It a Solid Buy

Many of the issues surrounding Hormel are common among many consumer staples stocks. That also means they are likely to be temporary and could turn around when economic conditions improve. That doesn't mean there won't be more downside risk to the stock in the short term. However, you should consider that many consumers are choosing to eat at home, and Hormel's high-protein offerings may help make a dollar stretch further. 

Even if growth is slow, one of the attractions of HRL stock is its high-yield dividend. Hormel is a dividend king that has increased its dividend for 59 consecutive years and has a 3.58% yield. Despite the headwinds, there's no reason to believe the dividend is in danger.