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Analyst Blog

On Mar 1, we reiterated our Neutral recommendation on the branded foods and meat manufacturer, Hormel Foods Corporation (HRL - Analyst Report), due to its decent fiscal first quarter 2013 results.

Why Maintained?

Hormel posted earnings per share of 48 cents, flat year over year, while falling a penny short of the Zacks Consensus Estimate.  Although revenue escalated 3.8% to $2,116.2 billion, it lagged marginally behind the Zacks Consensus Estimate of $2,126.0.

Following the release of the fiscal first quarter 2013 results, the Zacks Consensus Estimate for fiscal 2013 remained unchanged at $1.98 per share. However, the Zacks Consensus Estimate for fiscal 2014 went up 1.4% to $2.23 per share.

Hormel benefited from the high sales in four out of five of its segments. The company witnessed higher sales from its value-added products as well as international regions, mainly China. However, the increase was offset by a rise in the feed costs as well as lower margins from the pork processing business. SG&A also increased 2.2% against the year-ago quarter.

It is expected that the pork processing margins will continue to face a downward trend in the near future, coupled with an increase in the feed costs. However, the sales of value-added products of Hormel are expected to increase.

Also, Hormel acquired the Skippy peanut butter business in Jan, apart from its operations in China. The acquisition is expected to be accretive to Hormel’s earnings. The purchase will help Hormel expand its product portfolio and also diversify its offerings beyond the core meat business which is sluggish of late. Moreover, the diversification will also help control Hormel's increasing raw material costs.

Other Stocks to Look For

Other stocks that are performing well in the food industry are Hillshire Brands Company and Tyson Foods Inc. (TSN - Analyst Report); each carrying a Zacks Rank #1 (strong Buy). Another stock, Pilgrim's Pride Corporation (PPC - Snapshot Report) carries a Zacks Rank #2 (Buy).

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