Hormel In Line, Reiterates Guidance

On February 23, Hormel Foods Corporation (HRL - Analyst Report) posted its financial results for the first quarter of 2012 with an EPS 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 in the first quarter of 2011.

Net sales for the first quarter of 2012 were $2,039.4 million, up 6.1% y/y, 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.

During the first quarter of 2012, revenue from Grocery Products inched down 2.7% year over year while Jennie-O Turkey Store witnessed a stronger revenue improvement of 3.5%. The Refrigerated Foods segment ended the quarter with an increase of 7.2% in revenue year over year while Specialty Foods registered a rise of 13.9%. Revenue from all other items surged 16.6% during the reported quarter.

Operating profit for Grocery Products and Refrigerated Foods for the reported quarter, decreased 9.2% and 44.1% y/y, respectively. However, operating profit for Jennie-O Turkey Store climbed 4.0%, led by increased retail value-added sales. Specialty Foods dropped 3.7% year over year.

Gross profit, for the first quarter of 2012, was recorded at $337.4 million, down from $374.0 million reported in the year-ago comparable quarter. Selling, general and administrative (SG&A) expenses were up by 5.0% year over year, reaching $152.5 million in the reported quarter.

Exiting the first quarter, net cash provided by operating activities was recorded at $152.2 million compared with $165.3 million in the year-ago comparable quarter. At the end of first quarter 2012, the company recorded cash and cash equivalents of $548.6 million, down from $598.8 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 1Q12.

Outlook: Hormel maintains full-year earnings guidance range of $1.79 to $1.89 per share anticipating slowly improving results from Refrigerated Foods segment with pork operating margins returning to normalized levels. Sales in the Grocery Products segment and Meat Products group are also expected to improve with the effects of new advertising campaigns.

The Company paid 334^th consecutive quarterly dividend, at the annual rate of $0.60, effective February 15, 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 - Analyst Report), Kraft Foods Inc. (KFT) and Tyson Foods Inc. (TSN - Analyst Report).

We currently maintain a long-term Neutral recommendation on the stock. Hormel has a Zacks #4 Rank, which translates into a short-term Sell rating (1-3 months).