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Hormel's EPS Falls Short by a Penny

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Hormel Foods Corporation (HRL), a food company, posted earnings per share of 48 cents in the first quarter of fiscal 2013 (ended Jan 27, 2013), a penny short of the Zacks Consensus Estimate of 47 cents. Earnings were flat from the year ago quarter. This was a result of increased segmental revenue being offset by increased costs of raw materials.

Sales: Net sales for the reported quarter were $2,116.2 million, up 3.8% year over year; but lagged slightly behind the Zacks Consensus Estimate of $2,126.0 million. The year-over-year increase reflected sales gain across four of the company’s five segments.

During the reported quarter, revenue from Grocery Products improved 24.0% year over year while Jennie-O Turkey Store witnessed a revenue growth of 3.4%. However, the Refrigerated Foods segment registered a decline of 1.9% in revenue, based on lower commodity meat prices. On the other hand, Specialty Foods revenue swelled 7.3% while revenue from all other segment crept up 3.8% during the reported quarter.

Income/Costs: Gross profit for the first quarter of fiscal 2013 was $344.2 million, up 2.0% from $337.4 million in the comparable quarter last year. Selling, general and administrative (SG&A) expenses were up 2.2% year over year to $155.8 million in the quarter. Operating profit in the quarter increased 1.2% to $198.2 million year over year due to increase in operating profits across most of its segments.

Operating profit for Grocery Products for the reported quarter increased 13.2% while Jennie-O Turkey Store registered a decline of 23.2% year over year. Operating profit for Specialty Foods jumped 42.7%. All Other segment’s profit also surged 37.2% year over year.

Balance Sheet/Cash Flow: At the end of the reported quarter, the company recorded cash and cash equivalents of $887.7 million, up from $682.4 million at the end of the preceding quarter. Long-term debt (less current maturities) stood at $250.0 million at the end of the quarter, flat compared with the preceding quarter.

During the quarter, net cash provided by operating activities was recorded at $141.8 million compared with $152.2 million in the year-ago quarter. Capital spending totaled $19.1 million compared with $29.4 million in the year-ago quarter.

The company paid a dividend of 68 cents per share on Feb 15, 2013, representing 338th straight dividend payout by the company.

Outlook: Management expects Grocery Products, Specialty Foods and All Other segments to continue prospering in the coming quarters. However, Refrigerated Foods segment, which is going through difficult times at present, is expected to improve in the future.

Jennie-O Turkey will continue to face headwinds. Based on the enhanced performance of its business segments, Hormel increased its earnings estimates for fiscal 2013 to range within $1.93-$2.03 from the previously announced $1.90-$2.00.

The stock currently holds a Zacks Rank #2 (Buy). Other stocks worth considering in the industry are Hillshire Brands Company (HSH), Sanderson Farms Inc. (SAFM) and Tyson Foods Inc. (TSN), each carrying a Zacks Rank #1 (Strong Buy).

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