Hormel Foods (NYSE:HRL) is one of America’s largest packaged foods companies. It specializes in protein-based products such as bacon, canned chili, deli meats, nuts, and nut butter. This focus on protein products has served the company well, given that recent diet and nutritional trends have been leaning toward more protein and less carbohydrates. However, while Hormel the company has prospered, HRL stock certainly looked less appealing 6 months ago.
Hormel seemed like an obvious pandemic winner as people stocked up on food items for their pantry. However, the stock was actually a poor performer and slid to new 52-week lows last fall. Investors worried that the company would see its profitability drop amid the historic wave of inflation. Certain items, such as bacon, are highly sensitive to input costs and have seen sharp increases in price since 2020. So, it made sense that the company might see its results slip given the strong headwinds for the food industry.
However, Hormel’s most recent earnings put any such fears to rest. The company announced a shocking 24% growth in revenue year-over-year for the first quarter of this year. Even backing out of their recent acquisition of the Planter’s nut business, revenues surged 13% year-over-year on an organic basis. Clearly, the company has been more than able to keep up with inflation as far as its sales go. Margins weren’t bad either. The company posted 19% operating income growth for the year and it grew its earnings per share for the quarter by 7%, as well. To sum up, Hormel had great numbers across the board as it sold more food at higher prices.
This has led to a sudden turn of events for HRL stock. Last fall, it had slumped to $40 and was one of the worst-performing packaged foods companies in the country. It also had high short interest, sometimes reaching 10% of the float that was sold short. That is an amazingly high number for a company that sells staple goods such as meat, nuts, and guacamole. Short sellers clearly thought that the inflationary cycle was going to sink Hormel. Instead, the company has been able to raise prices on foods with little-to-no consumer pushback, which has led to record earnings. With that being the case, Hormel has swung from 52-week lows to 52-week highs, as shares are up 25% over the past six months. As consumer demand continues to grow for fresh and natural foods, such as naturally-raised meat, organic nuts and nut butters, and fresh-made guacamole, Hormel should continue to post more earnings growth and surprise the stock’s haters once again.
On the date of publication, Ian Bezek held a long position in HRL stock The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.