Hormel (HRL) Beats On Q3 Earnings, Raises FY16 Guidance

Meat and food products company, Hormel Foods Corporation (NYSE:HRL) reported strong results for third-quarter fiscal 2016 (ended Jul 24, 2016).

Adjusted earnings came in at 36 cents per share, reflecting a 33.3% surge from the year-ago tally of 27 cents, and surpassed the Zacks Consensus Estimate of 34 cents.

Inside the Headlines

Hormel Foods generated net revenue of $2,302.4 million, up 5.2% year over year, beat the Zacks Consensus Estimate of $2,238 million.

Hormel Foods’ cost of sales was up 2.7% to $1,827.1 million, representing 79.4% of net revenue versus 81.3% in the year-ago quarter. Gross margin expanded 190 basis points (bps) to 20.6%.

Selling, general and administrative expenses of $206.9 million (up 12.1% year over year) comprised roughly 9% of net revenue. The company’s operating margin was 11.9% compared to 10.6% in the year-ago quarter.

Segment Details

In the reported quarter, revenues from Grocery Products improved 2.9% to $399.3 million.

Revenues at the Jennie-O Turkey Store segment jumped 20% to $404 million.

Specialty Foods revenues tanked 25% to $212.2 million.

The company’s Refrigerated Foods segment garnered revenues of $1,155.3 million, up 9.4% year over year.

Lastly, International & Other revenues were up 5.2% to $131.6 million.

Other Financial Particulars

Exiting the third quarter of fiscal 2016, Hormel Foods had cash and cash equivalents of $379.6 million, up from $347.2 million as of Oct 25, 2015. However, the company’s long-term debt of $250 million (excluding current maturities) was mostly unchanged.

For the first nine months of fiscal 2016, Hormel Foods generated cash of $621.7 million from operating activities, down 9.9% year over year. Capital expenditure on purchase of property and plant totaled $163.2 million, compared to $81.8 million a year ago.

The company paid its 352nd consecutive quarterly dividend at an annualized rate of 58 cents, effective Aug 15, 2016.

Outlook

Hormel Foods has raised its full-year fiscal 2016 earnings guidance to the range of $1.60–$1.64 per share from the previous projection of $1.56–$1.60. The company expects higher international, Jennie-O Turkey Store and Refrigerated Foods sales to boost aggregate full-year revenue.

As of Aug 17, Hormel Foods closed the trading session at $36.35 per share. It is yet to be seen how investors react to the stock’s third-quarter performance.

Stocks to Consider

Hormel Foods currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks within the industry include Tyson Foods, Inc. (NYSE:TSN) , Sanderson Farms, Inc. (NASDAQ:SAFM) and Apollo Education Group, Inc. (NASDAQ:APOL) . Both Tyson Foods and Sanderson Farms sport a Zacks Rank #1 (Strong Buy), while Apollo Education Group has a Zacks Rank #2 (Buy).

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