Hormel's Turnaround: Can It Outrun the Headwinds?

Let's kick the tires on Hormel's situation. The numbers tell a clear story: the company is selling less. Last quarter, sales volumes fell 3.9% year on year. That's not a blip; it's a persistent decline. In the real world of grocery shelves, that means fewer cans of SPAM and less packaged meat hitting the cart.

The competitive reality is even starker. When you look at what actually gets bought, Hormel is getting outgunned. A detailed analysis of millions of receipts shows that Kraft Heinz outsold Hormel overall, by a wide margin. Even more telling, Kraft brand A.1. Sauce outranked any Hormel meat product. That's a gut check for the brand's strength. Nine of the top ten items in that data were Kraft Heinz brands. The takeaway isn't just that Hormel is losing ground; it's that its core meat business is being overshadowed by a competitor's spread and sauce.

So, what does Hormel do when sales shrink? It cuts costs. The company announced a restructuring that will reduce approximately 250 corporate and sales positions. This is a classic response to a shrinking sales base: align the workforce with the business reality. The move is framed as "thoughtful" and aimed at supporting future growth, but the bottom line is that the company is trying to save money while its top line struggles.

The smell test here is simple. You can't cut your way to long-term growth if the fundamental demand for your products is fading. Hormel is playing defense, trimming its corporate and sales teams to match a smaller pie. The question for investors is whether these cuts are a necessary cleanup or a sign the company is already losing its grip on the consumer's pantry.

The Turnaround Playbook: Fixing the Engine While the Race Heats Up

Hormel's playbook for a comeback is straightforward: sell the low-margin, low-growth parts of the business and pour money into the high-potential brands. The company is exiting its whole-bird turkey business, a move that clears the decks for a sharper focus on higher-margin, branded products like Planters and Jennie-O. This is a classic portfolio fix, cutting away the slow-moving assets to invest in the engines of future growth.

The direction of that investment is clear. Leadership says resources are being directed toward technology, innovation, food safety and quality. In practice, this means building a more efficient and responsive operation. The company is also taking a hard look at its own structure, with a restructuring that will reduce approximately 250 corporate and sales positions. The goal is to align the workforce with these strategic priorities, though it's a move that also cuts costs in the near term.

The financial impact of these moves is starting to show. For the first quarter, Hormel's adjusted operating margin improved to 8.2%. That's a tangible sign that the cost cuts and pricing actions are having an effect. The company is closing the gap between sales growth and profitability, as CEO Ettinger noted.

But here's the common-sense test: are these real operational fixes or just financial engineering? The exit from turkey is a real strategic shift, not an accounting trick. The investment in tech and quality aims to improve the product and the process. The margin improvement is a result of these disciplined actions. The skepticism is warranted, though, because the underlying sales volume problem remains. The company is now fighting a two-front battle: it needs to grow its core branded business while also executing this complex portfolio reshuffle. The margin bump is a good sign, but the real win will be sustained volume growth that doesn't require constant cost-cutting.

Financial Health vs. Core Problem: The Volume Gap

The numbers on paper look better. Hormel's free cash flow margin expanded to 9.3% last quarter, up from 7.9% a year ago. That's a solid improvement in how efficiently the company turns sales into cash. The adjusted operating margin also ticked up to 8.2%. On the surface, this looks like the turnaround is working.

But the common-sense smell test fails here. These financial wins are happening while the company's core sales volumes are still falling. The company reported a 3.9% year-on-year drop in sales volumes last quarter. That's the real-world metric: people are buying less Hormel meat. The financial improvements are largely a result of cost cuts and pricing actions, not because the product is suddenly more popular on the shelf.

The company's own guidance highlights the tension. Management reconfirmed its full-year outlook, but that guidance hinges on growing organic net sales by 1% to 4%. That's the biggest question mark. The recent "organic net sales growth" of 2% is driven by specific brands like Jennie-O ground turkey, which is helping offset the broader volume decline. It's a sign the portfolio fix is having some effect, but it's not a cure for the underlying demand problem.

The bottom line is that Hormel is masking a deeper issue. The financial health metrics are improving, but they're doing so while the fundamental engine-consumer demand for its core products-remains weak. The company is making its existing business more efficient, but it hasn't yet proven it can grow it. Until the volumes start to climb again, these financial gains feel more like a temporary reprieve than a sustainable turnaround.

Catalysts and Risks: What to Watch on the Ground

The turnaround is now in the proof-of-concept phase. The company has delivered a fifth straight quarter of organic net sales growth, with the latest showing a 2% increase. That's the key catalyst: can this modest growth accelerate as the cost cuts and portfolio reshuffle take hold? The recent margin improvement suggests the leaner cost base is working, but the real test is whether that efficiency translates into stronger volume growth, not just better accounting.

The major risk is that consumer demand remains stubbornly weak. The company's own sales volumes fell 3.9% year on year last quarter. That's the fundamental gap. Even with a leaner cost structure, it's hard to grow a business when people aren't buying more of your core products. The guidance for full-year organic net sales growth of 1% to 4% is a clear acknowledgment of this headwind. The recent 2% growth is being driven by specific brands like Jennie-O ground turkey, which is helping offset broader declines. This is a sign of progress, but it's not a broad-based revival.

So, what to watch on the ground? The sale of the whole-bird turkey business is a major move, and the reinvestment of that capital into brands like Planters and Jennie-O is the next chapter. The market will be watching to see if this capital allocation pays off in new revenue streams. The company's guidance for long-term growth is a 2-3% organic net sales growth target, which is ambitious given the current trajectory. The upcoming earnings report and the CAGNY conference will be the next opportunities to hear leadership's confidence in that plan.

The bottom line is that Hormel is playing a waiting game. It has fixed its financials, but it hasn't yet fixed its sales. The catalyst is clear: sustained volume growth. The risk is that it remains elusive. Until the parking lot at the grocery store starts to fill up with Hormel products again, the turnaround will feel more like a financial engineering exercise than a true consumer-led recovery.