Yahoo Finance Hormel Foods Hit by Inflation & Jennie-O Turkey Challenges
We issued an updated research report on premium meat products company, Hormel Foods Corporation HRL on Oct 16.
In the past three months, Hormel Foods’ shares have lost nearly 4%, as against 9.3% growth recorded by the industry. Notably, this Zacks Rank #4 (Sell) company’s earnings per share are expected to dip nearly 5.1% year over year for fiscal 2017, as against 29.3% growth estimated to be accrued from the industry.
Also, the Zacks Consensus Estimate for the stock moved down for both fiscal 2017 and 2018, over the last 60 days, reflecting negative sentiments.
Inside Story
Hormel Foods had reported weaker-than-expected third-quarter fiscal 2017 (ended Jul 31, 2017) results. Quarterly revenues and earnings missed the respective year-ago figures by 4.1% and 5.6%.
The company noted that the top-line results primarily dipped year over year due to the dreary performance of the Jennie-O Turkey Store segment. Fall in turkey prices, mounting competition and elevation in overall operating expenses have been weighing over this segment's results for the past two quarters.
Hormel Foods also stated that turkey prices (especially turkey breast meat) dropped during the fiscal third quarter. The turkey market has been facing an oversupply situation and is unlikely to witness any price hike in the upcoming quarters.
On the other hand, operating cost of the Jennie-O Turkey Store segment has been escalating due to the poor yield accrued from certain plant operations and maintenance required for bio-security measures.
In addition, intense competition has been putting pricing pressure on the Jennie-O Turkey Store business’ food service, retail and daily business chains.
Hormel Foods mentioned that apart from the dismal Jennie-O Turkey Store segment’s performance, inflation in the prices of major inputs, such as pork bellies and beef trim, hurt the bottom-line results in the last reported quarter. The company expects that elevated costs of these inputs will continue to dent its profitability in the near term as well.
Notably, the company trimmed its earnings per share guidance for fiscal 2017 from the $1.65-$1.71 per share range to the $1.54-$1.58 per share range, due to the aforementioned issues.
Furthermore, we believe a stronger U.S. dollar might mar Hormel Foods’ international revenues and margins, going ahead. Additionally, outbreak of livestock diseases is expected to give rise to sudden supply-chain challenges for the company going forward.
Stocks to Consider
Better-ranked stocks in the same space are listed below:
Blue Buffalo Pet Products, Inc. BUFF has an average positive earnings surprise of 3.64% for the last four quarters and currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Chefs' Warehouse, Inc. CHEF also holds a Zacks Rank #2 and pulled off an average positive earnings surprise of 0.08% over the trailing four quarters.
Colgate-Palmolive Company CL, another Zacks Rank #2 stock, generated an average positive earnings surpise of 0.38% during the same time frame.
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Blue Buffalo Pet Products, Inc. (BUFF) : Free Stock Analysis Report
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Colgate-Palmolive Company (CL) : Free Stock Analysis Report
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