Hormel (HRL) Expanded Adjusted Operating Margin Despite a Volume Decline. Can Cost Savings Carry the Turnaround?

Hormel (HRL) Expanded Adjusted Operating Margin Despite a Volume Decline. Can Cost Savings Carry the Turnaround?

Jeff Lewis

Fri, September 4, 2026 at 8:18 PM GMT+3 4 min read

• HRL -0.30%

Hormel Foods Corporation (NYSE:HRL) reported fiscal third-quarter sales of $2.96 billion, down 2.4%, as volume declined 7.4% and organic net sales fell 1.7%. Organic net sales is a company-defined non-GAAP measure that excludes the effect of the divested Justin's business from the prior-year comparison.

Hormel Foods Corporation (NYSE:HRL) presents its adjusted results as company-defined non-GAAP measures that exclude Transform and Modernize initiative costs, divestiture gains and losses, restructuring and consulting costs, litigation settlements and impairments. Adjusted diluted earnings per share also reflects related tax effects. Adjusted operating margin expanded to 9.0% from 8.4%, while adjusted diluted earnings per share increased to $0.37 from $0.35. Cash flow from operations rose 54% to $241 million. However, GAAP operating margin fell to 3.7% from 7.9%, and GAAP diluted earnings per share declined to $0.11 from $0.33.

Hormel Foods Corporation (NYSE:HRL) lowered fiscal 2026 sales guidance to $12.1 billion to $12.2 billion from $12.2 billion to $12.5 billion. Organic net sales growth guidance narrowed to 1% to 2% from 1% to 4%. Meanwhile, the lower end of adjusted diluted earnings per share guidance increased to $1.45 from $1.43, with the upper end unchanged at $1.51.

Bull Case

Hormel Foods Corporation (NYSE:HRL) is extracting more earnings from a smaller revenue base. Adjusted operating income increased to $266 million from $254 million, while adjusted selling, general and administrative expenses declined 11.6%.

Foodservice remains the strongest operating segment. Organic net sales increased 2%, segment profit rose 3%, and the segment recorded its 12th consecutive quarter of organic net sales growth. Premium prepared proteins, branded pepperoni and turkey products supported the result. Favorable pork input costs also helped offset higher logistics expenses.

Cash conversion provides additional support. Operating cash flow reached $769 million for the first nine months, up 47%, as inventory management and working-capital performance improved. That gives Hormel Foods Corporation (NYSE:HRL) flexibility to fund dividends and capital spending while demand remains soft.

Bear Case

The volume decline was broad. Retail volume dropped 9%, organic net sales fell 3%, and segment profit decreased 4%. International volume declined 11%, while organic net sales fell 4%. Foodservice growth was not strong enough to prevent companywide contraction.

The source of margin improvement also matters. GAAP gross margin declined to 15.9% from 16.1%. Based on adjusted cost of products sold, adjusted gross margin also declined to approximately 15.9% from 16.1%, indicating that adjusted operating-margin expansion came primarily from lower adjusted selling, general and administrative expenses. Those expenses declined on lower employee costs and reduced advertising. Advertising fell 18% during the quarter, partly because of campaign timing, while Hormel Foods Corporation (NYSE:HRL) still expects full-year advertising spending to approximate the prior year.

The GAAP and adjusted results remain far apart. Hormel Foods Corporation (NYSE:HRL) excluded $155 million of pretax items, including a Brazil divestiture loss, an Indonesian investment impairment, a litigation settlement, and transformation costs. Adjusted diluted earnings per share excludes those comparability items and their tax effects. Cost actions are helping, but repeated exclusions and weak volumes complicate the turnaround narrative.

Hedge Fund Sentiment

The filings available so far reflect positions held before Hormel Foods Corporation (NYSE:HRL) reported its fiscal third-quarter 2026 results. Insider Monkey's database showed 38 hedge funds holding Hormel Foods Corporation (NYSE:HRL) at the end of 2Q2026, up from 35 funds three months earlier.

Conclusion

Hormel Foods Corporation (NYSE:HRL) is defending adjusted profitability and generating stronger cash flow despite lower sales and volumes. Foodservice growth and productivity measures can support earnings during the transition, but cost savings cannot replace demand indefinitely. The turnaround will remain incomplete until retail volumes, organic net sales, and gross margin stabilize.

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Disclosure: None. This article is originally published at Insider Monkey.