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Hormel Foods Struggles With Pork Market Worries & Turkey Unit

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Hormel Foods Corporation (HRL - Free Report) looks troubled, owing to the challenges related to its Jennie-O Turkey segment, soft pork exports and input cost inflation. These factors also compelled management to lower its outlook for fiscal 2019, when it reported second-quarter fiscal 2019 results last month.

Given these hurdles, this Zacks Rank #5 (Strong Sell) stock has lost close to 5% in the past three months against the industry’s growth of 10.5%. Also, the Zacks Consensus Estimate for the third quarter and fiscal 2019 has moved down from 40 cents to 36 cents and from $1.81 to $1.73, respectively, over the past 30 days.

Let’s delve deeper.

Impediments in Hormel Foods’ Path

Turkey market challenges have been troubling Hormel Foods for the past few quarters. Though sales in the Jennie-O Turkey Store segment moved up in the second quarter of fiscal 2019, the unit continued witnessing retail declines. During the first quarter, revenues in the Jennie-O Turkey Store segment inched down roughly 0.5%, preceded by a decline of nearly 3.7% in the fourth quarter of 2018. Further, as the company continues to invest in the segment to regain retail distribution, it lowered expectations for the same.
Moreover, the volatile tariff environment has made things tough for Hormel Foods. Evidently, higher tariffs weighed on fresh pork export volumes, sales and profits at its International division during the second quarter of fiscal 2019. Similar headwinds were also present during the first quarter of fiscal 2019, and the fourth and third quarters of fiscal 2018. In fact, we note that management’s expectations regarding the dynamics of the pork industry in the long run led the company to sell its Fremont processing facility to WholeStone Farms in December 2018.

Additionally, second-quarter results were hampered by input cost inflation. This in turn stemmed from the African swine fever in China, which weighed on the hog and pork markets. Further, management expects input costs to remain high and affect profits at the Refrigerated Foods, Grocery Products and International categories in the second half of fiscal 2019.

The company has announced strong pricing actions across all its segments, except Jennie-O Turkey Store. However, these actions are not likely to offset the input cost inflation. These factors along with Turkey unit worries and expectations of volatile pork prices in the domestic market compelled management to lower its fiscal 2019 guidance.

Hormel Foods now expects net sales of $9.5-$10 billion compared with the previous outlook of $9.7-$10.2 billion. Further, it now envisions earnings of $1.71-1.85 per share, down from the old guidance of $1.77-$1.91.

Disappointed With Hormel Foods? Check These Solid Food Stocks

Pilgrim’s Pride (PPC - Free Report) , with a Zacks Rank #1 (Strong Buy), has witnessed solid upward estimate revisions in the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sanderson Farms (SAFM - Free Report) , which has delivered back-to-back positive earnings surprises in the last two quarters, also sports a Zacks Rank #1.

Tyson Foods (TSN - Free Report) , with a robust earnings surprise history, carries a Zacks Rank #2 (Buy).

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