Will Hormel Foods’ Earnings Growth Continue in Fiscal 1Q16?

Will Hormel Foods Deliver Strong Earnings Again in Fiscal 1Q16?

(Continued from Prior Part)

Positive earnings growth

Hormel Foods (HRL) has seen tremendous earnings growth since fiscal 1Q14. It reported net earnings of $187 million in fiscal 4Q15. This was an increase of 9% from net earnings of $171 million in fiscal 4Q14. The adjusted diluted EPS (earnings per share) for fiscal 4Q15 were $0.74, a rise of 17.5% compared to $0.63 in fiscal 4Q14.

For fiscal 2015, net earnings were $714.4 million, a rise of 19% from earnings of $602.7 million in fiscal 2014. EPS for 2015 were $2.64, an increase of 18% from EPS of $2.23 in fiscal 2014.

All the segments contributed to the company’s earnings growth. Management mentioned in its fiscal 4Q15 press release that the company’s net income and diluted net income numbers excluded charges associated with the closure of the manufacturing facility in Stockton, California, and charges from the exit from international joint venture businesses in the first quarter of fiscal 2015. The results also excluded a few other expenses related to the goodwill impairment associated with the Diamond Crystal Brands business and an adjustment to the contingent consideration accrual for CytoSport in the fourth quarter.

EPS estimated to be higher in fiscal 1Q16

Analysts estimate Hormel Foods’ EPS in fiscal 1Q16 to be 5.8% higher than in fiscal 1Q15. The estimate for fiscal 1Q16 EPS is $0.73. The company managed to surpass EPS estimates in all four quarters of fiscal 2015. In fiscal 4Q15, Hormel Foods beat estimates by 7.2%. Looking at the trend, we can expect earnings to have beaten estimates in fiscal 1Q16, too. Analysts who follow the company are forecasting an earnings increase this year of 10.6% over last year. Analysts expect growth in earnings next year of 7.4% over this year’s forecast earnings. They also expect the company to grow earnings at an average annual rate of 11.1% over the next five years.

Share repurchases

The company repurchased 400,000 shares of its stock for $24.9 million in fiscal 4Q15. It now has 7.8 million shares remaining from the current share repurchase authorization.

Other key results of fiscal 4Q15

Capital expenditures for fiscal 4Q15 reached $47.3 million, unchanged from fiscal 4Q14. Capital expenditures for fiscal 2015 were $144.1 million compared to $159.1 million in fiscal 2014. Management’s decision to delay the addition of capacity for Jennie-O fresh tray pack products in the face of lower turkey supply in 2015 affected capital expenditures.

The company paid down $165 million in debt out of the $350 million in short-term debt associated with the Applegate Farms acquisition. It plans to repay the remaining $185 million in fiscal 2016. Long-term debt at the end of fiscal 4Q15 was $250 million.

Peers’ earnings estimates

Hormel Foods’ (HRL) peers in the industry include Sanderson Farms (SAFM), Pilgrim’s Pride Corporation (PPC), and ConAgra Foods (CAG). The EPS estimates for these companies’ upcoming quarters are as follows:

• Sanderson Farms is expected to report $0.49 for fiscal 1Q16.

• Pilgrim’s Pride is expected to report $0.40 for fiscal 4Q15.

• ConAgra Foods is expected to report $0.60 for fiscal 3Q16.

The First Trust Consumer Staples AlphaDEX Fund (FXG) and the PowerShares DWA Consumer Staples Momentum Portfolio (PSL) invest 4.8% and 3.8% of their respective holdings in HRL.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Why Hormel Foods’ Stock Has Risen 17% since Fiscal 4Q15 Earnings

• Part 3 - Why Hormel Foods Expects Renewed Revenue Growth in Fiscal 2016

• Part 4 - How Hormel Foods Compares to Peers in Key Moving Averages