[Excerpted from Hendershot Investments' September Newsletter]
Brown-Forman (BF.B) - Cheers!
Brown-Forman earned a spirited 23.7% return on shareholders’ equity during 2010 and generated more than $500 million in free cash flow. The Board authorized the repurchase of up to an additional $250 million of its common shares. Brown-Forman expects a moderately better global economic environment and slightly improved consumer trends in fiscal 2011 with EPS in the range of $2.98 to $3.38.
Brown-Forman’s stock has nearly quadrupled over the last decade providing long-term investors with plenty of good cheer. With the stock appearing fairly valued, we plan to sip more profits by trimming our position in Brown-Forman.
Hormel (HRL)- Meaty Total Returns
Hormel Foods reported strong third quarter results with sales up a plump 10% to $1.7 billion as volume increased 2%. Both net income and EPS increased 11% to $85.4 million and $.63, respectively.
Strong sales growth in branded and value-added products was led by grocery products, refrigerated foods and Jennie-O Turkey Stores. Earnings growth was attributable to segment profit gains in four of five business segments led by a 93% gain at Jennie-O Turkey Store.
On the negative side, grocery products segment profits declined 23% due primarily to higher raw material costs. Hormel is implementing price increases to help offset the higher costs. New product lines, MegaMex Foods and Country Crock® side dishes, also contributed to the positive results.
During the quarter, Hormel repurchased 583,000 shares with 4.8 million shares remaining authorized for repurchase. Hormel’s first priority for its growing cash, which topped $427 million as of quarter end, is to seek acquisitions to grow their business while maintaining the financial strength to continue to increase its dividend and buy back shares opportunistically.
Due to the strong performance in the quarter, Hormel raised their full year earnings guidance to $2.85-$2.91 per share on an adjusted basis, which excludes $.10 per share in charges related to the closure of a plant and the impact of new healthcare laws. Over the last nine years, Hormel’s stock has provided a meaty 101% total return. With the stock appearing fairly valued, we plan to gobble up more profits by trimming our position in Hormel.
Infosys Technologies (INFY)- Raising Earnings Outlook
Infosys Technologies reported fiscal first quarter sales rose 21% to $1.4 billion with net profit up 4% to $326 million. Utilization for the quarter increased to 78.7%. The company added 38 new clients during the quarter and ended the quarter with 590 clients.
Infosys has approximately 115,000 employees and is increasing its recruitment target with the goal of hiring 36,000 employees this year compared to the 30,000 originally projected . While the global economic environment remains uncertain, especially in Europe, Infosys continues to see greater demand for their services with traction rising in North America and the rest of the world.
Infosys maintains a strong balance sheet with more than $3.4 billion in cash and no long-term debt. For the full fiscal year, Infosys raised their sales and earnings guidance with revenues expected to be in the range of $5.72-$5.81 billion, representing growth of 19%-21%. Earnings per American Depository Share are expected in the range of $2.42-$2.52, representing growth of 5.2%-9.6%.
Although, the volatile currency environment is a concern for the industry, Infosys’ flexible financial and operating model enables them to prioritize their investments and focus on high quality growth even in a tough environment. Infosys' stock has gained 24% over the last two years and appears fully valued, which has prompted us to trim the position.
Disclosure: Hendershot Investments holds a long position in each stock presented. The content in this article should not be taken as investment advice or construed as a recommendation to buy or sell any security. Ideas expressed may not be suitable for every account, depending on an individual’s investment objective, risk-tolerance and financial situation. Information presented here was obtained from sources believed to be reliable but accuracy and completeness and opinions based on this information are not guaranteed. It should not be assumed that investments discussed will be profitable or will equal the performance of securities listed here or recommended in the past. All data, information and opinions expressed are subject to change without notice. Further information on companies mentioned is available upon request.