Why Hormel's Profits Dropped 41% Despite Higher Sales

If you have ever bought a can of SPAM, a jar of Skippy peanut butter, or a tin of Planters nuts, you have contributed to the top line of Hormel Foods Corporation (HRL). As a major player in the consumer packaged goods (CPG) space, Hormel is a company that usually represents stability. However, even the most established giants face headwinds.

We are going to dig into Hormel’s income statement from their 10-K filing for the fiscal year ended October 26, 2025. The goal is to see how their operations performed over the last year and understand why, despite selling more food, they made significantly less profit.

Visualizing the Income Statement

To get a bird's-eye view of how Hormel converts its peanut butter and pepperoni sales into actual profit, take a look at the flow diagram below. This chart visualizes the company's financials for the full fiscal year 2025.

Top Line Growth vs. Bottom Line Pressure

At first glance, the top of the income statement looks stable. Hormel reported Total Revenue of $12.11 billion, a modest increase of 1.6% compared to the previous year. In a competitive food market dominated by players like Tyson and Kraft Heinz, keeping revenue moving in the right direction is a win, driven largely by pricing actions and steady demand in their foodservice division.

However, the story changes as we move down the statement. While revenue grew, the Cost of Revenue (the direct costs to make the food, such as ingredients and packaging) grew faster, rising 3.2% to $10.21 billion. Management cited higher commodity costs for pork bellies, beef, and nuts as primary drivers.

This mismatch squeezed the Gross Profit, which fell 6.4% to $1.89 billion. Consequently, Hormel's gross margin tightened to 15.6%, down from 17.0% the prior year. In the low-margin grocery business, a 1.4% drop is substantial.

The "Hidden" Hits to Net Income

The most striking number in the report is Net Income, which plummeted nearly 41% to $478.2 million. While the rising cost of goods played a role, two specific line items dealt a heavy blow to the bottom line:

1. Equity in Earnings of Affiliates: Usually, this line represents a steady stream of profit from joint ventures (like MegaMex Foods, the home of Wholly Guacamole). Last year, this contributed $51 million in profit. In 2025, it swung to a loss of $105.8 million. This is a massive swing largely attributed to impairment charges within those partnerships.
2. Impairment Charges: Hormel recorded $70.8 million in goodwill and intangible impairments. In accounting terms, "impairment" means the company acknowledges that certain assets or brands are worth less now than they were on paper previously, requiring a write-down that eats directly into profits.

Segment Performance

Hormel operates in three main segments, and their performance varied significantly:

• Retail: This is the bread and butter (or ham and turkey) of the business, bringing in $7.46 billion in revenue. Despite slight sales growth, segment profit dropped roughly 24%, highlighting the difficulty of passing inflated input costs on to cost-conscious grocery shoppers.
• Foodservice: This segment, which serves restaurants and cafeterias, remains a bright spot with $3.94 billion in sales (up 2.5%). However, even here, profits dipped slightly due to those rising commodity costs.
• International: While it only accounts for $709 million in revenue, this segment was hit hardest by the impairment charges mentioned above, swinging from a profitable division in 2024 to an operating loss of $80.4 million in 2025.

Conclusion

Hormel remains a financial fortress in many ways—it has paid dividends for an incredible 389 consecutive quarters. However, 2025 was clearly a "reset" year involving significant cleanup of their balance sheet via impairments and grappling with volatile input costs.

For investors and industry watchers, the key takeaway is that revenue growth doesn't always equal profit growth. While Hormel is selling plenty of product, the efficiency of converting those sales into earnings was hampered by both macroeconomic factors (commodity inflation) and one-time accounting charges. Looking ahead, the success of their "Transform and Modernize" initiative will be critical in restoring those margins to historical levels.