Validation of Hormel Prediction: 37% profit increase from 3% volume increase

Last quarter I said Hormel is going to get hot because their lower price offered them bigger headroom for profit growth. If Hormel improved its prices by 5% and if their volume fell by about the same amount, their revenue may not grow as much but their profits will increase by  $64 million, that is 60% net income growth from 5% price improvement!

This quarter’s earnings are out and validates my claim (although at a reduced level):

For the quarter ended Jan. 24, Hormel reported a profit of $111.2 million, or 82 cents a share, up from $81.4 million, or 60 cents a share, a year earlier. Revenue increased 2.3% to $1.73 billion and volume rose 3%.

Gross margin rose to 18.4% from 16.1% amid reduced commodity costs.

That’s effective price management!

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