On Jun 2, 2014, we issued an updated research report on
). The company reported strong results for the second quarter of
fiscal 2014 (ended Apr 27, 2014). Earnings per share increased 13%
year over year to 52 cents, led by a hike in revenues and margins.
Quarterly revenues increased 4% year over year to $2.2 billion due
to significant contribution from the acquired assets.
The company has been reaping benefits from its diversified
product portfolio. The mix offsets the loss incurred by any segment
through increase in the sales of other segments. The company
suffered a sales decline in three out of five segments in
second-quarter fiscal 2014. However, total revenue recorded an
increase of roughly 4% year over year.
Hormel also recorded a hike in contribution from the Skippy
peanut butter line acquired in Jan 2013, along with its China
operations, which were acquired in first-quarter fiscal 2014. The
acquisition is expected to contribute significantly to the revenue
growth in the coming quarters as well. Additionally, the company
has been involved in plenty of marketing and advertising
initiatives to increase its brand awareness.
However, we cannot negate the fact that fairly low barriers to
entry make the meat and food products market highly competitive,
thereby challenging Hormel's revenue generation. Moreover, in the
second half of fiscal 2014, costs of beef, pork, turkey and avocado
are expected to go up, which may affect margins in the quarters to
come. This has induced management to maintain its previous guidance
in the range of $2.17 to $2.27 per share for fiscal 2014. However,
increasing raw material costs may restrict earnings to the lower
end of the guidance.
With a Zacks Rank #4 (Sell), Hormel has a market capitalization
of $13.0 billion. Some better-ranked stocks in the industry worth a
Pilgrim's Pride Corporation
Sanderson Farms, Inc.
). While Pilgrim's Pride and Sanderson Farms sport a Zacks Rank #1
(Strong Buy), JBS has a Zacks Rank #2 (Buy).
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