On Mar 5, 2014, we issued an updated research report on Hormel Foods Corporation (HRL). The company reported strong results for the first quarter of fiscal 2014.
On a year-over-year basis, earnings increased 19% to 57 cents, while revenues were up 6% to $2.2 billion. Margins also improved year over year, led by higher revenues.
The company largely benefited from the acquisition of Skippy peanut butter line. In the reported quarter, most of the business segments recorded increased volumes due to the inclusion of Skippy. Hormel is expected to further boost its revenues and margins with the successful integration of the Chinese operations of Skippy.
Additionally, the company has been involved in plenty of marketing and advertising initiatives to increase its brand awareness. In the first quarter of fiscal 2014, roughly $36.1 million was spent on advertising campaigns compared with $24.7 million in the year-ago quarter. The investment in advertising is expected to translate to higher revenues in the coming quarters.
However, fairly low restrictions on the entry and exit in the meat and food products market exposes Hormel to stiff competition, thereby challenging its revenue generation. In the second and third quarters of fiscal 2014, the prices for raw materials including pork, poultry and feed grains are expected to rise, following the cold weather which will create a shortage of national propane and natural gas.
Key Picks from the Sector
With a Zacks Rank #3 (Hold), Hormel has a market capitalization of $12.5 billion. Some better-ranked stocks in the industry worth a watch include Tyson Foods, Inc. (TSN), The Hillshire Brands Co. (HSH) and Sanderson Farms, Inc. (SAFM). While Tyson Foods sports a Zacks Rank #1 (Strong Buy), Hillshire Brands and Sanderson Farms hold a Zacks Rank #2 (Buy) each.
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