Click to enlargeHormel Foods Corporation (NYSE:HRL) posted strong results for the fourth quarter and fiscal 2010 with an EPS of 90 cents and $2.92 compared with 77 cents and $2.53 in the respective period of fiscal 2009 based on increases of 23.2% and 10.5% in revenue in the respective period.
Fourth Quarter Highlights
During the quarter, Hormel reported EPS of 90 cents, 16.9% up from 77 cents in the year-ago quarter and also up from the Zacks Consensus Estimate of 79 cents. Net income reached $121.1 million from $103.9 million in the fourth quarter of 2009. The increase was driven by revenue growth coupled with cost maintenance.
During the quarter, net revenues were $2,063.0 million, up 23.2% from $1,675.1 million in the corresponding period of the previous year and $1,891 million according to the Zacks Consensus Estimate. This increase is attributable to increased revenues in Jennie-O Turkey Store and Refrigerated Foods segments.
Revenues from Jennie-O Turkey Store spiked 19.1% and Refrigerated Foods shot up by 26.3% due to the higher demand for food products based on the gradual improvement in economic conditions. Revenues from Grocery Products grew 23.7% and Specialty Foods grew 12.1% year over year.
The Refrigerated Foods segment finished the quarter with a 22.2% increase in operating profit and Jennie-O Turkey Store witnessed a strong improvement of 89.7% in profit based on the increase in the price of commodities. Segment profit for Specialty Foods and Grocery Products declined 6.4% and 6.2% year over year, respectively based on higher raw-material costs.
Selling, general and administrative (SG&A) expenses based on revenues declined by 40 basis points to reach $166.5 million.
During fiscal 2010, net income stretched 15.4% year over year to $395.6 million from $342.8 million in the previous year. EPS reached $2.92 from $2.53 in fiscal 2009 as opposed to $2.91, the Zacks Consensus Estimate.
Net revenues were $7,220.7 million, up 10.5% from $6,533.7 million in the previous year and $7,046 million according to the Zacks Consensus Estimate.
Revenues from Grocery Products and Refrigerated Foods shot up by 12.5% and 11.1% respectively. Revenues from Jennie-O Turkey Store went up by 6.7% and Specialty Foods grew 10.5% year over year.
The Refrigerated Foods segment, Jennie-O Turkey Store, and Specialty Foods reported strong operating profit margins of 22.2%, 65.3%, and 17.9% respectively. However, Grocery Products reported an operating loss of 4.1%.
Selling, general and administrative (SG&A) expenses based on revenues declined by 30 basis points to reach $605.3 million.
At the end of fiscal 2010, Hormel wiped off its entire long-term debt burden of $350 million and reclassified into current maturities. At present, the company has sufficient cash and cash equivalent and marketable securities of $467.8 million, an increase from $427.1 million at the end of the previous quarter, to meet its debt burden of $350 million. Thus, the company has strong liquidity positions.
Hormel initiated EPS guidance for fiscal 2011 and expects it in the range of $3.10 - $3.20.
With several acquisitions including the recent Don Miguel, Hormel has been strengthening its position. Moreover, given the company’s strong balance sheet with no long-term debt burden we expect acquisitions to play a key role in the company’s growth going forward.
Although the food market is highly competitive, a greater share of value-added branded products in Hormel’s product-mix will help it to strengthen its margins and reduce exposure to commodity prices in the long term. However, intense competition from competitors like ConAgra Foods Inc. (NYSE:CAG), Kraft Foods Inc. (KFT), and Tyson Foods Inc. (NYSE:TSN) together with huge dependence on raw materials do not bode well. Thus, we maintain our Neutral recommendation on the stock. The stock currently retains its Zacks #4 Rank (short term “Sell” rating).
Disclosure: No position