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Hormel Foods Corporation (NYSE:HRL) posted strong results for the third quarter of fiscal 2010 with an EPS of 63 cents, up from 57 cents in the year-ago quarter. Reported EPS also surpassed the Zacks Consensus Estimate of 59 cents.

Net income stretched 13.6% year over year to $85.4 million from $77.2 million in the third quarter of 2009. The increase was driven by revenues growth coupled with cost maintenance.

During the quarter, net revenues were $1,730.5 million, up 9.9% from $1,574.4 million in the corresponding period of the previous year and $1,681 million according to the Zacks Consensus Estimate. This increase is attributable to increased revenues in all segments.

Revenues from Grocery Products and Refrigerated Foods shot up by 12.5% and 12.1% respectively. Revenues from Jennie-O Turkey Store spiked only 0.2% while Specialty Foods grew 11.9% year over year. Higher demand for food products based on the gradual improvement in economic conditions is a strong reason for higher revenues.

The Refrigerated Foods segment finished the quarter with a 10.7% increase in its operating profit and Jennie-O Turkey Store saw a strong improvement of 92.6% in segment profit based on the increase in the price of the commodity.

Segment profit for Specialty Foods increased 19.5% year over year, with positive contributions from each of its three business units. Improved results were driven primarily by the sales of private label products and sugar substitutes. However, the Grocery Products segment reported a 22.9% decrease in operating profit based on higher protein costs.

Selling, general and administrative (SG&A) expenses based on revenues declined by 50 basis points to reach $146.5 million.

During the quarter, Hormel wiped off its entire long-term debt burden of $350 million, and increased its cash and cash equivalent and marketable securities to $427.1 million from $405.2 million at the end of the previous quarter.

Outlook

Based on better-than-expected results in the third quarter, Hormel raised its full-year EPS guidance from $2.75 - $2.85 to $2.85 - $2.91. Over the longer term, we believe that the greater share of value-added branded products in Hormel’s product-mix will help strengthen its margins and reduce its exposure to commodity prices. We reiterate our long-term recommendation as Neutral. The stock currently retains its Zacks #3 Rank (short term rating as Hold).

Source: Hormel Surpasses Expectations With Latest Earnings