Episode Details

Hormel Foods (HRL) Q3 FY2026 — Shares fell 10.2% to $21.28 on the print - the worst session of the whole twelve-month tape - gapping 3.0% lower and then losing another 7.5% through the day, before taking back 1.4% on Friday to close at $21.57. Hormel cut its reported EPS guidance to $1.06-$1.12 while raising the adjusted range to $1.45-$1.51. The cut put the $1.17 annual dividend above the top of the company own reported-earnings guide. Underneath it, volume fell 7.4% - 77.5 million fewer pounds - while realised price per pound rose 5.45%, and the adjusted operating profit that rose came out of overhead, not product. THE CALL: HOLD (3/5, MODERATE) — base-case value ~$21.73 vs ~$21.57 today. KEY METRICS: - Net sales $2,961M, -2.4% YoY; organic net sales -1.7% on the company own definition - Total volume 969M lbs vs 1,047M lbs - 77.5M fewer pounds, -7.4% - Realised price per pound $3.06 vs $2.90, +5.45% - price carried the entire top line - Reported operating profit $111M vs $240M; reported operating margin 3.7% from 7.9% - Reported EPS $0.11 vs $0.33; adjusted EPS $0.37 vs $0.35, +5.7% - Adjusted operating profit $266M vs $254M - a $12.0M increase - But gross profit fell $15.8M and adjusted overhead fell $28.4M; the bridge foots - Advertising investment $34M vs $41M, -17.1%, about a quarter of the overhead cut - Retail volume -9.1%, net sales -4.3%; Foodservice net sales +1.6%, 12th straight quarter - International segment swung to a $29M loss on a $48M non-cash impairment - Reported FY26 EPS guide cut to $1.06-$1.12 from $1.28-$1.37; sales guide cut $200M - Adjusted FY26 EPS guide raised to $1.45-$1.51 from $1.43-$1.51 - the top did not move - Dividend $1.17 a year, 5.42% yield - 104% of the TOP of the new reported guide - On the PREVIOUS guide the same rate was 88% of expected reported EPS - Nine-month free cash flow $549M covers $481M of dividends - 88%, with $68M to spare - Nine-month operating cash flow $769M vs $522M, but net earnings fell $135M - The improvement is a $255M working capital swing, larger than the $246M cash gain - Valuation $21.73 blended - DCF $22.22, 9.75x cash earnings $20.54, 5.25% yield $22.29 - Bear $16.91, bull $26.78; street median $26 but four of five targets predate the print - The tape requires only 1.40% perpetual growth against long-run inflation nearer 2% What to watch: Total volume turning flat or better, gross margin recovering above 16.1%, or reported EPS returning above the $1.17 dividend rate would each break our thesis Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.