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Will Hormel (HRL) Miss on Earnings?

Zacks Equity Research

Consumer-branded meat and food products company, Hormel Foods Corporation (HRL) is set to report fiscal fourth-quarter 2013 results before the opening bellc on Nov 26. In the last quarter, it delivered 4.5% negative earnings surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider

In the third quarter of fiscal 2013, Hormel reported improved year-over-year results, with earnings per share of 42 cents, a penny higher than the year-ago quarter. Total revenue in the quarter increased 7.5% year over year to $2,159.5 million, on the back of strength across all the segments. The company’s acquisition of the Skippy peanut butter line was also a major reason for the growth.

Moreover, Hormel experienced a rise in operating income for all its segments, except the Refrigerated Foods segment, due to a higher pork input costs. The increasing costs as well as reduced supply of raw materials like pork, poultry and feed grains have been impacting the company’s margins for quite some time.

Management expects raw materials costs to impact fourth-quarter margins as well. However, the company is optimistic of higher sales from the Jennie-O Turkey Store segment over the coming quarters.

Earnings Whispers?

Our proven model does not conclusively show that Hormel is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, #2 or #3 for this to happen. That is not the case here as we see below.

Zacks ESP:  The Most Accurate Estimate stands at 54 cents, flat with the Zacks Consensus Estimate.

Zacks Rank: Hormel’s Zacks Rank #3 (Hold) when combined with a neutral ESP makes a surprise prediction difficult. We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Other Stocks to Consider

Here are other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Omega Protein Corporation (OME), Earnings ESP of +16.00% and a Zacks Rank #1 (Strong Buy)

United Natural Foods, Inc. (UNFI), Earnings ESP of +3.70% and a Zacks Rank #2 (Buy).

Campbell Soup Company (CPB), Earnings ESP of +1.39% and a Zacks Rank #3 (Hold).

Read the Full Research Report on CPB
Read the Full Research Report on HRL
Read the Full Research Report on UNFI
Read the Full Research Report on OME

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