Updated Research Report on Hormel - Analyst Blog

On Jun 2, 2014, we issued an updated research report on HormelFoods Corporation ( HRL ). 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 watch include Pilgrim's Pride Corporation ( PPC ), Sanderson Farms, Inc. ( SAFM ) and JBS S.A. ( JBSAY ). 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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

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