Restaurants are buying bacon again, Hormel's surprising profit jump shows

The quarterly results for Hormel Foods tell an optimistic story: The pandemic economy is in rapid recovery.

The Austin, Minn.,-based food company shocked investors Thursday morning when it beat both sales and earnings estimates, including gains in restaurant sales, and raised its outlook for the rest of the year.

Even the headwinds facing Hormel, including inflated commodity prices in corn and pork that are leading the company to raise its customer prices, point to growing demand caused by a rebounding economy.

Food service is a catchall term for out-of-home eating establishments, including restaurants, hotels, hospitals and school cafeterias. The pandemic thrashed this segment of the food industry — which accounts for about 30% of Hormel's revenue — as institutions closed and stopped buying bulk food items.

While American society has been gradually reopening since the winter as the vaccines roll out, Hormel's food service sales surged, even exceeding 2019 prepandemic levels.

"The rebound in food service is real. There is a pent-up demand," said Jim Snee, Hormel's chief executive, told the Star Tribune. "As more and more states and communities opened up, restaurants were packed. And then you compound that with this newfound ability for carry-out, delivery, online ordering."

The gains come even as lodging, K-12 schools and colleges aren't yet fully back to normal operations. Other aspects of the business, like corporate events and conventions, haven't even begun to return, Snee said.

Wall Street analysts and investors were surprised by the company's revenue of $2.6 billion — a 7.6% increase over a year ago — and 42 cents per share earned for the second quarter.

Hormel's stock, which rarely sees large swings, rose nearly 7.4% to $49.36 Thursday.

"Higher food-service sales were a pleasant surprise. With the reopening of economies post-pandemic, food-service momentum should continue, if not accelerate," John Boylan, a food industry analyst for Edward Jones, wrote in his analysis.

Hormel raised its full-year sales guidance to between $10.2 billion and $10.8 billion, up from its previous forecast of between $9.7 billion and $10.3 billion. It maintained its 2021 earnings-per-share guidance given the dampening effect inflation may have on its margins.

The COVID-19 crisis that hit the meatpacking industry early last spring with large outbreaks nationwide is improving.

Hormel reported Thursday its employee vaccination rate is currently 51%. As more workers get vaccinated, COVID-related costs are in decline, said Hormel chief financial officer Jim Sheehan.

Workers are using the company's COVID paid time off program less. At its peak, Hormel had thousands of workers out on that leave because they either weren't feeling well or had been exposed to a friend or family member who later tested positive. This week, Snee said, only 40 workers are on paid time off under the program.

Hormel will finalize the $3.3-billion acquisition of Planters nuts from Chicago-based Kraft Heinz in June. The company is opening an R&D and administrative facility in the Chicago area where it will run the Planters business.