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Why Is Hormel Foods (HRL) Up 5.5% Since the Last Earnings Report?

Zacks Equity Research
Updated

It has been about a month since the last earnings report for Hormel Foods Corporation HRL. Shares have added about 5.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hormel Foods' Q2 Earnings Miss, Revenues Down Y/Y

Hormel Foods reported weaker-than-expected results for second-quarter fiscal 2017 (ended Apr 30, 2017).

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Earnings: Quarterly adjusted earnings came in at $0.39 per share, a penny lower than the year-ago tally. The figure also missed the Zacks Consensus Estimate of $0.40 per share.

Revenues: In the fiscal second quarter, Hormel Foods generated net sales of $2,187.3 million, which reflected a decline of 4.9% year over year. The top line also fell short of the Zacks Consensus Estimate of $2,222 million.

Segmental Performance

In the reported quarter, revenues from Grocery Products improved 7.7% to $432.2 million.

Revenues at the Jennie-O Turkey Store segment declined 8.3% to $388.2 million.

The company’s Refrigerated Foods segment generated revenues of $1,027 million, down 5.9% year over year.

International & Other revenues rose 19% to $131.2 million

Specialty Foods revenues were down 23.6% to $208.2 million.

Margins: Hormel Foods’ cost of sales slid down 4.1% to $1,727.9 million. Gross margin contracted 60 basis points (bps) to 22.3%.

Quarterly selling, general and administrative expenses came in at $181 million, as against $211.1 million recorded in the year-ago period.

The company’s operating margin was 14.5% compared to 14.1% in the prior-year quarter.

Balance Sheet: Exiting the fiscal second quarter, Hormel Foods had cash and cash equivalents of $548.9 million, up from $415.1 million as of Oct 30, 2016. However, the company’s long-term debt of $250 million (excluding current maturities) remained unchanged.

Exiting fiscal first quarter, Hormel Foods had cash and cash equivalents of $609.8 million, up from $415.1 million as of Oct 30, 2016. However, the company’s long-term debt of $250 million (excluding current maturities) remained mostly unchanged.

Cash Flow: For the fiscal second quarter, Hormel Foods generated cash of $261.2 million from operating activities, plunging 36.2% year over year.

The company paid its 355th consecutive quarterly dividend at an annualized rate of $0.68 per share, effective May 15, 2017.

Outlook: Hormel Foods reiterated its earlier projection of earnings within the range of $1.65–$1.71 per share for fiscal 2017. However, the company expects its performance to be hurt due to the dismal conditions prevailing in the turkey industry. Nonetheless, the company is poised to grow on the back of its balanced business model.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

Hormel Foods Corporation Price and Consensus

 

Hormel Foods Corporation Price and Consensus | Hormel Foods Corporation Quote

VGM Scores

At this time, the stock has a poor Growth Score of 'F', however its Momentum is doing a bit better with a 'C'. Charting the exact same path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is equally suitable for value and momentum investors.

Outlook

While estimates have been moving downward, the magnitude of the revision is net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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Zacks Investment Research