On Sep 3, 2013, we reiterated our Neutral recommendation on
Hormel Foods Corporation
), based on the company's future growth potential.
Why the Retention?
Hormel reported mixed results for the third quarter of fiscal
2013. While earnings per share of 42 cents missed the Zacks
Consensus Estimate of 44 cents by 4.5%, revenues of $2,159.5
million beat the Zacks Consensus Estimate of $2,127.0 million.
The year-over-year increase in revenues was mainly led by
increase in contribution from all segments, accompanied by the
recently acquired Skippy peanut butter line. Higher expenditures
impacted margins as well as earnings in the quarter.
Hormel's diversified portfolio helps it to balance the profits
and losses of its segments. The company's Refrigerated Foods
segment's operating profit declined 26.3% year over year, due to
higher raw materials costs. However, the same could not pull down
the total margins significantly due to hikes in other segment's
The company has also been attaining success with respect to
acquisitions. Hormel's Skippy peanut butter line's sales
increased in the reported quarter due to improved distribution.
Moreover, the company has plans to acquire the China operations
of Skippy in the current fiscal year.
Hormel has spent over $20 million a year on advertisements in
the past two fiscal years. The expenses were utilized for the
advertisement of burgers and turkey bacon, which resulted in a
double-digit sales hike for these products.
However, the increasing costs as well as reducing supply of
the raw materials like pork, poultry and feed grains along with
other products have been impacting the company's margins for
quite some time. Moreover, due to low entry barriers in the meat
and food products market, Hormel faces stiff competition from
national and regional producers of other meat and protein sources
as well as from the manufacturers of pork and turkey
Other Stocks to Consider
Hormel currently carries a Zacks Rank #3 (Hold). Other stocks
worth a look in the industry include
Pilgrim's Pride Corporation
Smithfield Foods, Inc.
Tyson Foods, Inc.
). While Pilgrim's Pride carries a Zacks Rank #1 (Strong Buy),
Smithfield Foods and Tyson Foods carry a Zacks Rank #2 (Buy).
HORMEL FOODS CP (HRL): Free Stock Analysis
PILGRIMS PRIDE (PPC): Free Stock Analysis
SMITHFIELD FOOD (SFD): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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