Here's Why Hormel Stock Climbed 16% Last Month

Shares of food company Hormel (HRL 1.20%) climbed 16.3% during February, according to data provided by S&P Global Market Intelligence. The stock was essentially flat and underperforming the S&P 500 for most of the month. But the company reported financial results for the fiscal first quarter of 2024 on Feb. 29, and shares subsequently jumped to its 16% monthly gain.

Investors may be confused by the market’s excitement after looking at Hormel’s headline numbers. The company’s Q1 net sales (which cover the the quarterly period that ended on Jan. 28) were up a paltry 1% year over year. And its Q1 operating income of $284 million was actually down 2%.

Hormel’s forward guidance was equally bland. The company expects full-year fiscal 2024 net sales of $12.5 billion at most, which would only be 3% growth from its fiscal 2023. Likewise, its guidance for adjusted earnings per share (EPS) is $1.51 to $1.65. For perspective, it had adjusted EPS of $1.61 in fiscal 2023, so its profitability could be down this year.

The market was nevertheless enthused with Hormel’s financial results and financial guidance because the stock was uncharacteristically cheap leading up to the report. In other words, investors appear to have expected bad results. Its ho-hum financial results, therefore, looked good by comparison, and the stock jumped.

Just how cheap was Hormel stock?

Hormel stock is known for its dividend — the company has paid and raised it for over 50 consecutive years. The chart below “only” displays results for the last 40 years, not the whole 58 years for Hormel’s dividend. But the company’s dividend yield had reached nearly 4% in February, the highest according to the data from YCharts.

HRL Dividend Yield data by YCharts.

All other things being equal, a higher dividend yield suggests a cheaper stock.

The cheaper a stock becomes, the more the market is expressing a lack of confidence in the business. To be sure, Hormel has its headwinds to deal with — management expects the whole-bird turkey market to plunge in fiscal 2024, for one example. And that hurts this company because of its large turkey business with its Jennie-O brand.

However, the headwinds aren’t enough to derail Hormel entirely. Given its illustrious track record and stable financial guidance for fiscal 2024, investors were willing to buy back into Hormel stock in February.

What’s next for Hormel?

Hormel is looking to leverage the large convenience store presence of its Planters brand into growth for its higher-margin food-service business. Moreover, the company is hoping to upgrade aspects of its supply chain to unlock another $200 million in annual operating profits by fiscal 2026.

That profit growth from food-service revenue and supply-chain upgrades is key for investors who are looking at Hormel’s dividend. As companies grow profits, they have a higher capacity to grow their dividends. Regarding Hormel, I don’t see any reason why it can’t keep its streak of dividend raises going for many years yet.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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