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Earnings Preview: Hormel Foods

Zacks Equity Research

Hormel Foods Corp. (HRL) will be reporting its second-quarter 2012 earnings on Wednesday, May 23, 2012.

The current Zacks Consensus Estimate for earnings per share is 42 cents, representing an annualized growth of 3.86%.  

With respect to earnings surprises over the trailing four quarters, HRL outperformed the Zacks Consensus Estimate in two quarters and was in line in the rest.  Average earnings surprise was 2.62%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

First Quarter 2012 Highlights

On February 23, Hormel Foods Corporation posted its financial results for the first quarter of 2012 with earnings per share of 48 cents, down 13% compared with 55 cents in the prior-year period and in line with the Zacks Consensus Estimate.

Net earnings reached $128.4 million, down 14% from $148.8 million reported in the first quarter of 2011.

Net sale were $2,039.4 million, up 6.1% y/y, but slightly missing the Zacks Consensus Estimate of $2,047 million. The year-over-year increase was driven by four of the company’s five segments registering sales gain in the quarter. International business also contributed to growth, fueled by strong export sales.

Agreement of Estimate Revisions   

In the last 30 days, one analyst decreased the company’s earnings per share estimates for the second quarter of 2012. However, none increased the same as there was no catalyst for such change. For fiscal 2012, none of the analysts increased or decreased their estimate, and followed a similar trend for fiscal 2013.

Magnitude of Estimate Revisions   

Estimates over the last 30 days remained static at 42 cents per share for the second quarter of 2012.

Estimate for fiscal 2012 remained static at $1.82 over the last 30 days while that for fiscal 2013 showed a similar trend at $1.95. These estimates represented a year-over-year growth of 4.50% and 7.00% for 2012 and 2013, respectively.

Our Take   

Hormel is likely to post encouraging results in the second quarter of 2012 based on the rising prices of its value-added food products. The company’s portfolio of product mix alongside its persistent strategies of retail penetration, brand building and promotional efforts appear impressive.

The company faces stiff competition from ConAgra Foods Inc. (CAG), Kraft Foods Inc. (MDLZ), 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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