S&P Global downgrades Hormel Foods outlook on high leverage

S&P Global has downgraded its outlook for Hormel Foods Corp. to negative while maintaining its 'A-' credit rating. The agency cites leverage as the primary concern, noting that it has been at or above 1.8x for the past 18 months, surpassing expectations. As of July 2026, adjusted leverage stood at 1.8x following six consecutive quarters of approaching 2x.

S&P Global projects leverage will remain around this level for fiscal 2026, with marginal improvement to 1.7x in 2027 and 1.6x in 2028. This is significantly higher than the 1.5x and 1.3x levels the firm previously anticipated for 2027 and 2028.

Hormel's EBITDA margins have fallen from above 14% pre-COVID to under 11% in 2026. This decline is attributed to rising input costs for pork, beef, nuts, and logistics, as well as company-specific disruptions such as issues with snack nut supply and plant disruptions. The third-quarter saw organic net sales decline 2%, mainly due to lower commodity-linked pricing and reduced sell-through amid declining retail consumption.

Hormel is undertaking divestitures of lower-margin and commodity-linked assets, including its Brazil business, private label snack nuts, and the whole-bird turkey unit. However, these divestitures are not expected to provide substantial cash proceeds to bring debt back to a more manageable level. In fiscal 2025, Hormel recorded a discretionary cash flow deficit of $55 million, with S&P Global predicting this deficit will stay below $50 million in fiscal 2026.

The negative outlook suggests a potential downgrade if Hormel fails to reduce leverage closer to 1.5x. S&P Global warns it could lower ratings if the company persists at the higher end of its 1.5x to 2x leverage target, if consumer demand continues to pressure retail volumes, if margins remain compressed, or if cost savings from the Transform & Modernize program are insufficient.