As Americans dine out, Hormel's restaurant sales surge

Americans are dining out again and Hormel's restaurant sales reflect it.

The company's food service business, which serves the restaurant industry, surged 45% over last year's pandemic-induced lull during the summer quarter.

Even when compared with pre-pandemic levels, Hormel Foods Inc.'s food service revenue is up considerably. That's because Hormel's product offerings include premade kitchen shortcuts that appeal to restaurant operators at a time when many are short of workers, said chief executive Jim Snee.

On Thursday, the Austin, Minn.-based food maker reported sales growth across every business segment in its fiscal third quarter ended July 25.

The rise in COVID-19 cases due to the delta variant in the U.S. has not slowed Hormel's food service business.

"We are seeing it accelerating and we are incredibly bullish," Snee said. "We expect labor to continue to be an incredible pain point for food service operators but our portfolio is going to help them overcome that."

As did many of its industry peers, Hormel raised prices on its food items this spring over concern that supply inflation could diminish its profit. The maker of Spam, Skippy and Wholly Guacamole recently raised prices across its branded products, and plans more price increases for its fourth quarter.

The hikes more than offset the cost of rising inflation, said Jim Sheehan, Hormel's chief financial officer.

Hormel posted record sales of more than $2.9 billion for the May, June and July quarter, exceeding analysts' expectations. The quarter's balance sheet for the first time includes the Planters snack nuts brand, which it bought for $3.4 billion in June, the largest acquisition in company history.

"In the third quarter, our team delivered the highest quarterly sales in the company's 130-year history while operating in an environment that included inflationary pressure and industrywide supply chain challenges," Snee told investors.

The company adjusted its full-year guidance on expectations that the fourth quarter will produce another period of record sales. Net sales for the year are now expected to reach between $11 billion and $11.2 billion, up from its previously offered range of $10.2 billion to $10.8 billion.

The company lowered earnings for the full year as a result of one-time costs incurred in the Planters integration process — a move that ruffled investors.

Earnings per share are expected to range from $1.65 to $1.69, down from an earlier forecast of $1.70 to $1.82.

Hormel's stock closed at $43.57, down 4.6% on the mixed results.

John Boylan, a food industry analyst with Edward Jones, was balanced in his assessment.

"We think this was a mixed quarter, but not unexpected," Boylan wrote in a note. "Hormel is feeling the impact of cost inflation for transportation, ingredients and labor. Cost inflation is not unique to Hormel. Most other consumer staples companies have similar issues."