Hormel Foods Corporation (HRL) is scheduled to report fourth-quarter 2014 results before the opening bell on Nov 25. The company generated a positive earnings surprise of 6.25% in the preceding quarter with an average earnings surprise of 1.22% in the last four trailing quarters. Let’s see how things are shaping up prior to the upcoming earnings publication.
Factors to Influence Q4 Results
Hormel Foods expects to generate superior results in the upcoming quarter as market demand for most of its popular products is steadily increasing over time. The company’s profitability and revenue margin can remarkably improve, provided it is able to check the high input costs of its Grocery Product and Refrigerated Food business divisions.
Additionally, Hormel Foods has recently acquired assets of CytoSport Holdings, Inc., and the deal is expected to add $370 million to its aggregate revenue in the fourth quarter. With the help of a highly diversified portfolio, the company expects to nullify certain losses in its business. Furthermore, being a typical monopolistic firm, Hormel Foods is successfully enhancing its customer base by incurring worthwhile brand promotional expenses.
However, optimistic outcome of Hormel Foods’ business can be offset by the issues faced by its trade. The company’s input costs are increasing due to lower market supply of some of its raw materials such as pork, poultry and feed grains. Even so, prices of some inputs such as beef, turkey and avocado are expected to go up in the near future. Increased costs will negatively affect margins and earnings of the company in the upcoming quarter. In addition, highly competitive marketplace with fairly low barriers to entry can significantly lower its market share and margin in the upcoming quarter. Hormel Foods’ strategy to grow through acquisitions also exposes it to several potential risks and integration hazards. Moreover, acquisitions made outside the U.S. frequently face problems related to government regulations and/or foreign currency fluctuations.
Earnings Whispers
Our proven model does not conclusively show that Hormel Foods is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as we will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate of 64 cents, is currently pegged at 0.00%. This indicates in-line earnings for the stock.
Zacks Rank: Hormel Foods’ Zacks Rank #3, when combined with a 0.00% ESP, makes surprise predictions difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Tyson Foods, Inc. (TSN) with an Earnings ESP of +3.75 and a Zacks Rank #2.
The Hain Celestial Group, Inc. (HAIN) with an Earnings ESP of +0.93% and a Zacks Rank #2.
Nutrisystem, Inc. (NTRI) with an Earnings ESP of +5.88% and a Zacks Rank #2.
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