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Why Hormel Foods Stock Was Torn Today

Sales are down and management is changing their outlook accordingly.

Actions of Hormel Foods (HRL -7.32%) was knocked down on Wednesday after the company reported financial results for the third fiscal quarter of 2024. As of 10:30 a.m. ET, Hormel shares were down 8% and nearing nine-year lows.

The outlook is dimming for Hormel

In Q3, Hormel’s net sales of $2.9 billion fell 2 percent year over year, more than Wall Street had expected. That said, the company’s net income of $177 million rose nearly 9% and beat estimates. Normally, earnings outperformance would lift the stock price. But investors are reacting negatively to a major change in management’s financial guidance.

Hormel management guided full-year net sales from $12.2 billion to $12.5 billion. But now management expects net sales of $11.8 billion to $12.1 billion, a reduction of 1% to 5%. It may seem like a small adjustment, but keep in mind that Hormel just reported its third-quarter results, which means the fiscal year is almost over.

In the second quarter, Hormel’s management reaffirmed its guidance. But now the orientation drops by only a quarter from the end. Investors don’t like to see such a sudden change and that’s why stocks are down today.

Is Hormel Stock Safe?

At 3.7%, the dividend yield on Hormel stock is nearing an all-time high, suggesting investors are a little worried about this investment. However, Hormel is a dividend king with over 50 years of consistently paying and increasing its dividends. It is true that sales are on the decline and the payout ratio is on the rise, which are not good things. But I think it’s likely to find a way to grow earnings and preserve future dividend payments.

As a mature business, Hormel will not make spectacular adjustments. But continued improvements in its international segment and synergies in its retail segment could help in the coming quarters.

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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