Hormel Earnings Preview

| About: Hormel Foods (HRL)

Hormel Foods Corp. (NYSE:HRL) will be reporting its first quarter 2012 earnings on Thursday, February 23, 2012.

The current Zacks Consensus Estimate for earnings per share (EPS) is 48 cents, representing an annualized loss of 12.07%.

With respect to earnings surprises over the trailing four quarters, HRL outperformed the Zacks Consensus Estimate in three quarters and was in line with one. Average earnings surprise was 11.05%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth Quarter and Full Year 2011 highlights

Hormel Foods Corporation posted financial results for the fourth quarter and fiscal 2011 with an EPS of 43 cents, down 4% from 45 cents in the prior-year period. The recorded EPS surpassed the Zacks Consensus Estimate by a penny.

In FY11, diluted net earnings per share were recorded at $1.74, up 15% from diluted adjusted net earnings per share of $1.51 and 19% from U.S. GAAP diluted earnings per share of $1.46 recorded in FY10.

Net sales in the fourth quarter of 2011 were $2,103.9 million, up 2% y/y, slightly missing the Zacks Consensus Estimate of $2,109 million. The rise was driven by net sales increase across four of its five segments backed by strategic pricing actions. Advertising campaigns and acquisitions also provided impetus to the company’s sales activities during the quarter.

Agreement of Estimate Revisions

In the last 30 days, no analyst increased the company’s earnings per share (EPS) estimates for the first quarter 2012. However, one analyst decreased his estimate for the same. For fiscal 2012, none of the analysts increased their estimates; whereas one decreased the same over the last 30 days. A similar trend was followed for fiscal 2013.

Magnitude of Estimate Revisions

Estimates over the last 30 days decreased by a penny from 49 cents to 48 cents per share for the first quarter of 2012, representing a year-over-year loss of 12.07%.

Estimate for fiscal 2012 remained static at $1.83 over the last 30 days while that for fiscal 2013 showed a marginal decrease from $1.94 to $1.93. These estimates represented a year-over-year growth of 4.65% and 5.92% for 2012 and 2013, respectively.

Our Take

We are concerned about the rising raw material prices and cold storage costs, which may compress sales and squeeze operating profits for the company. Moreover, competition from big banners and low-cost regional products is expected to temper sales and affect topline for the current quarter. This, we believe, will also call for a rising cost scenario in order to manufacture value-added, differentiated products and survive the competition without having to compromise on quality.

Based in Austin, Minnesota, Hormel Foods Corporation is a leading manufacturer and marketer of various meat and food products in the United States and internationally.

The company faces stiff competition from ConAgra Foods Inc. (NYSE:CAG), Kraft Foods Inc. (KFT), and Tyson Foods Inc. (NYSE:TSN).

We currently maintain a long-term Neutral recommendation on the stock. Hormel has a Zacks #4 Rank, which translates into a short-term Sell rating (1-3 months).

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Tagged: , Meat Products, Earnings
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