Hormel Navigates Cost Storms with Pricing, Productivity, and a Simpler Portfolio
Q2 organic sales growth and margin expansion, but Q3 EPS to be flat as fuel, freight, and commodity costs bite.
HRL · Earnings Call · 2026-05-28
Hormel Foods delivered another quarter of organic net sales growth—its sixth in a row—alongside double-digit adjusted EPS growth and gross margin expansion. The company’s protein centric portfolio across retail, foodservice, and international continues to prove its resilience in a strained consumer environment. But management was clear that the current cost environment—particularly fuel and freight—will weigh on the third quarter, and they guided to flat earnings year-over-year for Q3.
A Strong Quarter, But a Cautious Outlook
For fiscal Q2, organic net sales rose 3%, with foodservice up 7%, international up 5%, and retail up 1%. Gross margin expanded to 17.4% (+70bps), and adjusted EPS reached $0.40, up 14%. Management reaffirmed full-year guidance of $12.2–$12.5 billion in net sales and $1.43–$1.51 in adjusted EPS, while noting they expect to land in the upper half of the earnings range. “we feel we are still within the range... we do believe we are trending to the upper half of the range this point.” — Jeffrey Ettinger, Chairman and Chief Executive Officer · 2026-05-28 However, they explicitly called out third-quarter pressures:
While we expect the back half overall to deliver both top and bottom line growth, we now see third quarter adjusted earnings to be more in line with the prior year.
The rationale: a full quarter of elevated fuel costs, ongoing commodity volatility—particularly in pork—and the temporary hit from inventory rebalancing. The company is also facing the lapping of certain pricing actions and the impact of the whole bird turkey divestiture on reported sales.
The Logistics and Cost Confluence
The biggest near-term headwind is logistics. The broader market is grappling with High fuel costs—a theme that has surfaced across many earnings calls this season—and Hormel is no exception. John Ghingo noted, “While those costs were a year over year headwind, we improved execution in the second quarter to better navigate the environment and manage costs.” — John F. Ghingo, President and Chief Operating Officer · 2026-05-28 But the second quarter only captured a portion of the elevated fuel prices; the full 13 weeks of Q3 will bear the brunt, making the year-over-year logistics headwind more pronounced. In the previous quarter, management had flagged logistics as a potential issue, but the magnitude has now intensified. As Jeff Ettinger said in the February call, “we remain on a path to generate the sequential but modest bottom line improvement in Q2” — Jeffrey Ettinger, Chairman and Chief Executive Officer · 2026-02-26—which now appears challenging given the fuel surge. This is a classic case of the external environment forcing a more conservative near-term view, even as the company’s core growth drivers remain intact.
Simplification and Inventory Management
Two strategic moves stand out this quarter. First, Hormel closed the divestiture of its whole bird turkey business, a deliberate step to reduce commodity volatility and focus on higher-value branded products. “This move reinforces our focus on higher value, less volatile, branded offerings.” — Paul R. Kuehneman, Senior Vice President and Chief Financial Officer · 2026-05-28 The transaction will reduce fiscal 2026 net sales by roughly $50 million but with minimal earnings impact, underlining the company’s portfolio simplification. Second, management is proactively rebalancing ambient inventory levels—think Skippy and other center-store items—to align better with demand. “We are taking targeted steps to rebalance certain ambient inventory levels.” — Paul R. Kuehneman, Senior Vice President and Chief Financial Officer · 2026-05-28 This will temporarily lower plant utilization, lower plant utilization being a key driver of the flattish Q3 outlook. CFO Paul Kuehneman described it as a sign of improved integrated business planning, and the company sees it as a long-term efficiency win. This inventory discipline, paired with the ongoing SG&A savings and pricing actions, should position Hormel to continue its growth algorithm once these near-term cost pressures fade.
The quarter also saw continued strength in foodservice, with 7% organic sales growth driven by brands like Hormel Natural Choice and Austin Blues, and international growth of 5% despite a challenging global environment. Retail was up 1%, with Jennie-O ground turkey and Applegate leading the way, though management acknowledged some structural pressure in categories like nuts. The company also welcomed its first chief technology officer, a signal that digital modernization remains a priority.
Looking ahead, the company’s confidence is rooted in its protein-centric portfolio and its ability to execute on pricing, mix, and productivity. Yet the third quarter is setting up to be a pause, not a decline, in earnings. Investors will need to watch whether the fuel and commodity headwinds persist into Q4, and whether the inventory rebalancing truly yields the promised efficiency. Hormel has navigated volatility before—its sales growth streak is a testament to that—but the next quarter will test whether it can hold the line on guidance while absorbing these costs. Earlier in the year, management had laid out a realistic plan. “we believe our guidance is realistic and achievable and demonstrates the value of our balanced protein-centric portfolio” — Jeff Ettinger, CEO · 2025-12-04 —a sentiment that remains relevant, even as the near-term path turns bumpier.