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Hormel Foods (HRL) Down 2.2% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Hormel Foods Corporation (HRL - Free Report) . Shares have lost about 2.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

First-Quarter FY17 Highlights

Hormel Foods reported weaker-than-expected results for first-quarter fiscal 2017 (ended Jan 31, 2017).

Earnings: Quarterly adjusted earnings came in at $0.44 per share, a penny higher than the year-ago tally. However, the bottom line missed the Zacks Consensus Estimate of $0.46.

Revenues: In fiscal first quarter, Hormel Foods generated net sales of $2,280.2 million, down 0.5% year over year. The top line also fell short of the Zacks Consensus Estimate of $2,287 million.

Segmental Performance

In the reported quarter, revenues from Grocery Products improved 6.5% to $417.7 million.

Revenues at the Jennie-O Turkey Store segment jumped 13.1% to $421 million.  

The company’s Refrigerated Foods segment generated revenues of $1,123 million, down 3.4% year over year.

International & Other revenues declined 2.1% to $125.8 million

Specialty Foods revenues were down 19% to $192.6 million.

Margins: Hormel Foods’ cost of sales edged down marginally 0.4% to $1,727.9 million. Gross margin contracted by 10 basis points (bps) to 24.2%.

Quarterly selling, general and administrative expenses came in at $210.1 million as against $209.9 million recorded in the year-ago period.

The company’s operating margin was 15.6% compared to 15.7% in the prior-year quarter.

Balance Sheet: Exiting fiscal first quarter, Hormel Foods had cash and cash equivalents of $609.8 million, up from $415.1 million as of Oct 30, 2016. However, the company’s long-term debt of $250 million (excluding current maturities) remained mostly unchanged.

Cash Flow: For fiscal first quarter, Hormel Foods generated cash of $177.6 million from operating activities, plunging 36.3% year over year. Capital expenditure on purchase of property and plant totaled $34 million compared to $32.1 million a year ago.

The company paid its 354th consecutive quarterly dividend at an annualized rate of 68 cents, effective Feb 15, 2016.  

Outlook: Hormel Foods projects earnings within the range of $1.65–$1.71 per share for fiscal 2017 as against the previously stated guidance of $1.68–$1.74 per share. The forecast has been revised downwards on grounds of dismal conditions prevailing in the turkey industry. However, the company is poised to grow on the back of its balanced business model.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.

VGM Scores

At this time, Hormel Foods' stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. Charting a exact same path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is solely suitable for growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  It's no surprise that the stock has Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.


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