Meat and food products company, Hormel Foods Corporation (HRL) reported impressive results for the third-quarter of fiscal 2014 (ended Jul 27, 2014). Earnings came in at 51 cents per share, reflecting an increase of 21.4% year over year and above the Zacks Consensus Estimate of 48 cents. The top line upside was led by improved revenues and margins.
Revenues
Hormel Foods generated net revenue of $2,284.9 million, up 5.8% year over year. Top line also beat the Zacks Consensus Estimate of $2,217.0 million. The year-over-year increase was mainly driven by improvement in Refrigerated Foods, Jennie-O Turkey Store and International & Other segments, which was partially offset by decline in the other segments.
Segment Revenues: In the reported quarter, revenues from the Grocery Products segment declined 2.9% to $359.5 million, and that from the Jennie-O Turkey Store segment increased 4.2% to $382.6 million. Revenues from the Specialty Foods segment dropped 10% to $216.4 million. The Refrigerated Foods segment’s revenues improved 11.6% to $1,192.6 million. Similarly, revenues from the International & Other segment climbed 18.3% to $133.7 million.
Margins
Hormel Foods’ cost of sales climbed 5% year over year and represented 84.1% of net revenues versus 84.7% in the year-ago quarter. Gross margin inched up 60 basis points (bps) to 15.9%.
Selling, general and administrative expenses, at 6.7% of net revenue, grew 1.3% year over year. Operating margin expanded 100 basis points year over year to 9.4%.
Balance Sheet
Exiting third-quarter fiscal 2014, Hormel Foods had cash and cash equivalents of $531 million, up from $499.3 million at the end of the preceding quarter. Long-term debt (less current maturities) was stable at $250.0 million.
Cash Flow
In the first three quarters of fiscal 2014, Hormel Foods generated cash of $394.4 million from its operating activities, down 8% from the year-ago comparable period. Capital expenditure on purchase of property and plant totaled $103.3 million versus $62.2 million in the nine months ended Jul 27, 2014. Dividends paid were $150.4 million, up 16.2% from the first nine months of fiscal 2013.
Outlook: For fiscal 2014, Hormel Foods anticipates improved results from the Jennie-O Turkey Store, International & Other and Specialty Foods segments. SKIPPY peanut butter items and Hormel Rev snack wraps will also gain momentum. However, Grocery Products and Refrigerated Foods segments will suffer from higher cost of raw materials.
Hormel Foods maintained its earnings guidance for fiscal 2014 in the range of $2.17 to $2.27 per share.
Other Stocks to Consider
With a market capitalization of $12.6 billion, Hormel Foods currently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the food industry include Pilgrim's Pride Corporation (PPC), Sanderson Farms, Inc. (SAFM) and Treehouse Foods, Inc. (THS). All these stocks sport a Zacks Rank #1 (Strong Buy).
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