Hormel Beats, Retains Guidance

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Hormel Foods Corporation (HRL) posted second-quarter 2012 financial results with earnings per share of 48 cents, surpassing the Zacks Consensus Estimate of 42 cents. The quarter’s earnings also spiked 20% from 40 cents per share reported in the prior-year period.

Net earnings reached $127.9 million, up from $109.6 million in the second quarter of 2011.

Net sales for the second quarter of 2012 were $2,012.9 million, up 2.7% year over year, slightly missing the Zacks Consensus Estimate of $2,035 million. The year-over-year increase was driven by the sales gain among four of the company’s five segments. Export sales across international business also contributed to growth.

During the reported quarter, revenue from Grocery Products inched up 1.4% year over year and Jennie-O Turkey Store witnessed revenue improvement of 6.9%. However, the Refrigerated Foods segment ended the quarter with a decline of 0.8% in revenue year over year based on lower pork operating margins. On the other hand, Specialty Foods registered a rise of 11.7% and revenue from all other items surged 11.1% during the reported quarter.

Operating profit for Grocery Products for the reported quarter increased 9.8% while Refrigerated Foods registered a decline of 24.5% year over year. Operating profit for Jennie-O Turkey Store jumped 50.3%, led by increased retail value-added sales. Specialty Foods surged 8.8% year over year.

Gross profit, for the second quarter of 2012, was recorded at $335.6 million, up from $326.2 million reported in the year-ago comparable quarter. Selling, general and administrative (SG&A) expenses were down 7.1% year over year, reaching $148.7 million in the reported quarter.

Exiting the second quarter, net cash provided by operating activities was recorded at $213.0 million compared with $275.9 million at the end of the year-ago comparable quarter. At the end of the reported quarter, the company recorded cash and cash equivalents of $524.8 million, down from $913.7 million at the end of the previous year comparable quarter. The long-term debt (less current maturities) stood at $250 million at the end of 2Q12.

Outlook: Hormel maintains full-year earnings guidance range of $1.79 to $1.89 per share, anticipating positive sales momentum from branded stores resulting from new advertising campaigns. Management also holds a positive outlook toward improving results from Refrigerated Foods segment with pork operating margins returning to normalized levels.

The company paid its 335th consecutive quarterly dividend, at an annual rate of 60 cents, effective May 15, 2012. Also, it has recently declared quarterly dividend of 15 cents per share on the company’s common stock. The dividend will be paid on August 15, 2012 to stockholders of record as of the close of business on July 23, 2012.

Based in Austin, Minnesota, Hormel Foods Corporation is a leading manufacturer and marketer of various meat and food products in the United States and internationally. The company faces stiff competition from ConAgra Foods Inc. (CAG), Kraft Foods Inc. (KFT) and Tyson Foods Inc. (TSN).

We currently maintain a long-term Neutral recommendation on the stock. Hormel has a Zacks #3 Rank, which translates into a short-term (1-3 months) ‘Hold’ rating.

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