Hormel Foods reaffirmed its annual sales and profit forecasts even as its second-quarter revenue missed estimates, sending the company's shares up as much as 8% in early trade.
Multinational meat packers have gradually bumped up the prices of their goods over the past year to battle rising labor, freight and raw materials expenses.
However, this has led consumers to pull back spending on Hormel's pricier product assortments such as Planters snack nuts and look for cheaper alternatives amid growing recessionary fears in the United States.
"Investors might be pleasantly surprised to see the company reaffirm its full-year guidance, as many investors were expecting another downward revision to earnings," said CFRA Research analyst Arun Sundaram.
But Sundaram noted Hormel's optimism for a strong second half could be met with challenges if there is no "significant turnaround in volumes."
'Slow China Recovery'
Volume in its retail segment, that supplies products to big-box retailers such as Walmart, dropped 7.1%, while the foodservice segment slipped 1.3% in the quarter ending April 30.
The Planters owner's international segment volume was down 4%, as the company saw a slow recovery in its China business and less turkey available to export due to the continuing impacts of avian influenza.
The company's second-quarter net sales fell 3.8% to $2.98 billion (€2.77 billion), missing analysts' estimate of $3.05 billion (€2.84 billion), according to Refinitiv data.
Supply Chain Problems
Additionally, Hormel's profit margins have also been dented by ongoing supply chain problems and excess inventory due to increased production, which has pushed it to undertake more promotional activity.
The company's total segment profit fell 11.6% compared with a year earlier, but it earned a profit of 40 cents per share, which was in line with estimates.
The quarter was "not as bad as feared," wrote J.P.Morgan analyst Thomas Palmer in a note.