Hormel confronts consumer resistance to continued price increases

Hormel Foods is seeing sales drop as consumers and retailers push back against higher prices.

More price increases are coming from Hormel this summer anyway.

"We're being extremely mindful to protect both our margins but also to protect our relationship with our customers and our consumers," Deanna Brady, head of Hormel's retail division, told analysts Thursday. "When we approach retailers with the right information that supports a price increase, we've been able to come to terms and move forward."

As overall inflation finally begins to temper — the federal outlook for 2023 food inflation has been consistently falling — consumer expectations are shifting. That has led to what Hormel calls "the impact of elasticities related to pricing actions," or a drop in demand due to higher prices.

Walmart, the nation's largest retailer, made it clear last month it wants food prices to drop so shoppers have more cash to spend.

The retailer is "working with those suppliers that are on the prepared foods and consumable categories to get costs down more as fast as we possibly can," Walmart CEO Doug McMillon said.

McMillon said he wants to see a return to volume growth as opposed to higher prices driving growth. In the past two years, most food manufacturers have grown their revenue through price increases rather than by selling more products.

Hormel CEO Jim Snee says the company's "inflation-justified pricing actions" are helping the bottom line.

Brady says prices are just one part of "consumers remembering the value our brands play in their lives."

The continued price hikes are a recognition that the Austin, Minn.-based maker of Spam, Skippy, Planters and Black Label bacon has a lot of ground to make up to meet its goal of 1-3% sales growth this year. Halfway through its fiscal year Hormel has seen sales slip more than 3% compared with the first six months of 2022.

Snee said food service and international sales will be "primary drivers for growth" through the rest of the year.

Hormel on Thursday reported a $217 million profit in its second fiscal quarter that ended in April. That's a 17% decline from the same period last year, but the earnings per share of 40 cents was a penny above Wall Street expectations.

Snee said Thursday the results were "in line with our expectations for the quarter, and most importantly, keep us on track to drive growth in the back half of the year."

Sales of $2.97 billion in the quarter just missed investor expectations and dropped 4% from last year.

Hormel predicts earnings per share to be flat or fall for the full fiscal year.

The company's stock price rose more than 5% on Thursday to close at $40.20. The stock has traded as low as $37.78 and as high as $51.69 in the past 52 weeks.