S&P Global Revises Hormel Foods Outlook to Negative on High Leverage

S&P Global Ratings has revised its outlook on Hormel Foods Corp. (NYSE:HRL) to negative from stable, signaling a potential future downgrade due to the company's persistently high leverage. The ratings agency affirmed Hormel's 'A-' issuer credit rating and the 'A-' issue-level rating on its existing debt.

Elevated Leverage Prompts Outlook Change

The revision follows a year and a half in which Hormel's leverage has consistently been at or above 1.8x, a level S&P considers high for the current rating. As of July 26, 2026, the agency's adjusted leverage for Hormel stood at 1.8x after six consecutive quarters approaching 2x.

S&P Global has adjusted its forecast, now expecting Hormel's leverage to remain near this level for fiscal 2026, with only modest improvement to 1.7x in fiscal 2027. This is a notable change from previous expectations that the company would deleverage to 1.5x in fiscal 2027.

Margin Pressure and Operational Headwinds

Hormel's financial performance has been hampered by significant margin contraction and operational challenges. Key factors cited by the ratings agency include:

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• Compressed Margins: EBITDA margins have fallen from pre-pandemic levels above 14% to below 11% in 2026.
• Rising Costs: The company is facing higher input costs for key commodities like pork, beef, and nuts, in addition to increased logistics expenses.
• Sales Decline: Third-quarter organic net sales fell by 2%, driven by lower commodity-linked pricing and weaker retail consumer demand.
• Company-Specific Issues: Recent performance was also impacted by snack nut supply disruptions and other plant-related incidents.

Path to Deleveraging Remains Unclear

While Hormel is taking steps to improve its financial profile by divesting lower-margin assets, including its Brazil business and private label snack nuts unit, S&P noted these actions have not yet generated enough cash to significantly reduce debt. The company reported a discretionary cash flow deficit of $55 million in fiscal 2025, with another deficit below $50 million forecast for fiscal 2026.

The negative outlook reflects the risk of a credit rating downgrade if Hormel fails to bring its leverage sustainably closer to 1.5x. S&P stated it could lower the rating if the company continues to operate at the high end of its public leverage target of 1.5x to 2x, or if consumer demand and profit margins remain under pressure.