Hormel (HRL) Beats Q2 Earnings, Ups View; To Buy Justin's

Premium meat and food products company Hormel Foods Corporation (NYSE:HRL) reported better-than-expected bottom-line results for second-quarter fiscal 2016 (ended Apr 24, 2016). The company’s earnings came in at 40 cents per share, surpassing the Zacks Consensus Estimate of 38 cents. Also, the result increased 21% over the year-ago tally of 33 cents.

Inside the Headlines

In the quarter, Hormel Foods’ net revenue totaled $2,300.2 million, below the Zacks Consensus Estimate of $2,330 million. Also, the top-line inched up 0.9% year over year.

Hormel Foods’ cost of sales was down 2.5% year over year to $1,773.9 million, representing 77.1% of net revenue compared with 79.8% in the year-ago quarter. Gross margin expanded 270 basis points to 22.9%.

Selling, general and administrative expenses increased 11.3% year over year to $211.1 million. The company’s operating margin came in at 14.1% compared with 12.2% in the year-ago quarter.

Segmental Details

In the reported quarter, revenues from Grocery Products increased 1.1% year over year to $401.5 million, while the same for the company’s Jennie-O Turkey Store fell 3.5% to $423.5 million. The Specialty Foods revenues declined 5.2% to $272.5 million. Also, revenues from the International & Other fell 17.2% to $110.3 million while Refrigerated Foods revenues increased 6.8% year over year to $1,092.5 million.

Other Financial Particulars

Exiting second-quarter fiscal 2016, Hormel Foods’ cash and cash equivalents were $379.9 million, slightly above $375.2 million in the previous quarter. The company’s long-term debt (excluding current maturities) stood relatively stable at $250 million.

In the quarter, Hormel Foods’ net cash generated from operating activities totaled $409.1 million, down 8.2% year over year. Capital expenditure on purchase of property and equipment totaled $97.1 million, up from $43.9 million recorded in the year-ago quarter. Dividends payment amounted to $142.9 million while shares worth $6.4 million were repurchased during the quarter.

Important Events Worth Considering

Concurrent with the earnings release, Hormel Foods announced the payment of its 351st consecutive quarterly dividend. The annualized rate of 58 cents per share was paid on May 16, 2016.

In addition, Hormel Foods announced to have signed an agreement to acquire the owner of the Justin’s brand, Justin’s, LLC. The latter markets four popular nut butter-based snack lines, including spreads, squeeze packs, peanut butter cups and snack packs.

Outlook

For fiscal 2016, Hormel Foods increased its earnings guidance to a range of $1.56–$1.60 per share from the earlier projection of $1.50–$1.56 per share. The revised guidance is based on the expectations of further gains from the company’s Grocery Products, Specialty Foods, Jennie-O Turkey Store and Refrigerated Foods businesses. Backed by favorable input prices and sound marketing strategies, the company aims to accrue higher earnings and revenues in the quarters ahead.

With a market capitalization of $20.6 billion, Hormel Foods presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the food industry include Tyson Foods, Inc. (NYSE:TSN) , Farmer Brothers Co. (NASDAQ:FARM) and Campbell Soup Company (NYSE:CPB) . All these stocks carry a Zacks Rank #2 (Buy).