Hormel (HRL) To Report Q2 Earnings: What's In The Cards?

Hormel Foods Corporation (NYSE:HRL) is slated to report second-quarter fiscal 2018 (ended April 2018) results on May 24, before the market opens.

The company recorded a negative average earnings surprise of 2.03%, over the past four quarters. However, in first-quarter fiscal 2018, its adjusted earnings of 44 cents per share came in line with the Zacks Consensus Estimate.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Hormel anticipates that elevated demand for its finest brands, such as Spam, Dinty Moore, Skippy, Wholly Guacamole, Herdez, Natural Choice, black label bacon, Hormel Pepperoni and Justin's, will have bolstered revenues in the to-be-reported quarter.

Moreover, the company’s focus on making diligent marketing and advertising moves from the beginning of this calendar year is expected to have helped improve top-line results in the fiscal second quarter.

The Zacks Consensus Estimates for the fiscal second-quarter net sales of the company’s Grocery Products and Refrigerated Foods segments are currently pegged at $646 million and $1,189 million, higher than the respective tallies of $432 million and $1,027 million recorded in the prior-year quarter.

Also, the Zacks Consensus Estimates for the fiscal second-quarter operating profit of the company’s Grocery Products and Refrigerated Foods segments are currently pegged at $108 million and $139 million, higher than the respective tallies of $77 million and $130 million reported in the yea-ago quarter.

Hormel Foods also believes reduced corporate tax rates will have aided in boosting free cash flow in the quarter under review.

However, prevalent turkey market challenges are feared to have affected Hormel Foods’ Jennie-O Turkey Store segment’s revenues and profitability in the quarter to be reported. The turkey market has been facing an oversupply situation and is unlikely to witness price hike in the near term.

Notably, the Zacks Consensus Estimates for the fiscal second-quarter net sales and operating profit of the company’s Jennie-O Turkey Store segment are currently pegged at $380 million and $52 million, lower than the respective tallies of $388 million and $64 million recorded in the year-earlier quarter.

Moreover, high volatility in prices of major inputs like pork bellies and beef trim might have depressed Hormel Foods’ profitability in the fiscal second quarter.

Earnings Whispers

Our proven model does not conclusively show that Hormel Foods will likely beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen.

That is not the case here as we will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Hormel Foods currently has an Earnings ESP of 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate are pegged at 45 cents per share.

Zacks Rank: Hormel Foods currently carries a Zacks Rank #3. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks in the Zacks Consumer Staples sector that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

B&G Foods, Inc. (NYSE:BGS) carries a Zacks Rank of 2 and has an Earnings ESP of +7.14%. You can see the complete list of today’s Zacks #1 Rank stocks here.

United Natural Foods, Inc. (NASDAQ:UNFI) carries a Zacks Rank of 2 and has an Earnings ESP of +1.73%.

Constellation Brands Inc. (NYSE:STZ) carries a Zacks Rank of 3 and has an Earnings ESP of +0.43%.

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