Can Hormel Foods (HRL) SurviveTurkey Woes in Q3 Earnings?

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Hormel Foods Corporation HRL is slated to report third-quarter fiscal 2018 results on Aug 23, before the market opens. The company has a mixed record of earnings surprises in the trailing four quarters. Let's see what's in store for this renowned food company this time.

Factors Likely to Aid

Hormel Foods' acquisition efforts have added much strength to its brand portfolio along with enhancing revenue generation capabilities. During second-quarter fiscal 2018, the company's performance gained from the buyouts of Fontanini, the Ceratti brand and Columbus Manufacturing. The company anticipates that the successful integration of Fontanini and Columbus businesses will continue to strengthen business portfolio, going forward.

Moreover, the company is expected to continue gaining from robust demand of popular brands like Hormel Black Label bacon, SPAM, Muscle Milk, Café H and Wholly Guacamole dips. Additionally, the company expects that its Make the Switch campaign will bolster sales of the value-added businesses in the second half of fiscal 2018, including the third quarter.

Given such upsides, the Zacks Consensus Estimates for revenue growth for the impending quarter in the Grocery Products, Refrigerated Foods and International & Other segments are pegged at 2%, 14.5% and 25.5% year on year, respectively. Further, the Zacks Consensus Estimate for net revenues is pegged at $2,404 million for the third quarter, which depicts a rise of 8.9% from the year-ago quarter's figure.

Apart from these, the company's earnings in the to-be-reported quarter is likely to gain from reduced corporate tax rates. Notably, lower taxes provided cash benefits of $45 million in fiscal second quarter and generated operating cash flows of $443 million on a year-to-date basis. Moreover, for the impending quarter, the Zacks Consensus Estimate for earnings is pegged at 38 cents, depicting an increase of 11.8% from the year-ago quarter's tally.

Hormel Foods Corporation Price, Consensus and EPS Surprise

Hormel Foods Corporation Price, Consensus and EPS Surprise | Hormel Foods Corporation Quote

Will Commodity Market Volatility Weigh on Results?

While gains from buyouts and lower taxes keep us encouraged about Hormel Foods' performance, there are certain underlying concerns which are hard to ignore. In this regard, the turkey market has been turbulent for a while. In fiscal second quarter, revenues in the company's Jennie-O Turkey Store segment dipped 4%, thanks to excess meat stock in cold storage and fall in turkey prices. Moreover, higher freight expenses and elevated advertising costs weighed on the segment's bottom line.

Apart from this, Hormel Foods' profitability is exposed to threats stemming from input price volatility. During the second quarter, the company experienced inflation in beef prices and anticipates the same to persist through the remaining of the current fiscal. Moreover, uncertain impact of tariffs on the pork industry is a major cause of concern. Similar challenges are also being experienced by other food companies like Tyson Foods TSN , Conagra Brands CAG and TreeHouse Foods THS .

Needless to say, such headwinds are likely to weigh on the company's fiscal third-quarter results, unless adequately cushioned by robust top-line performance and substantial savings from lower taxes. All said, lets take a look at what the Zacks Model predicts for the upcoming quarterly announcement.

Zacks Model

Our proven model doesn't show that Hormel Foods is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive  Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Hormel Foods' Zacks Rank #4 (Sell) combined with an Earnings ESP of 0.00% lowers expectations of an earnings beat this time.

You can see  the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: TSN , HRL , CAG , THS

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