Hormel Foods Corp Earnings Cheat Sheet: Increased Costs Strains Margins as Profit Drops

S&P 500 (NYSE:SPY) component Hormel Foods Corporation (NYSE:HRL) reported its results for the fourth quarter. Hormel Foods produces and markets a variety of meat and food products throughout the United States and internationally.

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Hormel Foods Earnings Cheat Sheet for the Fourth Quarter

Results: Net income for the meat products company fell to $117.3 million (43 cents per share) vs. $121.1 million (45 cents per share) a year earlier. This is a decline of 3.2% from the year earlier quarter.

Revenue: Rose 2% to $2.1 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: HRL beat the mean analyst estimate of 42 cents per share. Analysts were expecting revenue of $2.11 billion.

Quoting Management: “I am proud of the team for finishing an outstanding year with a fourth quarter that met our expectations. For the quarter, we are pleased to have generated segment profit increases in four out of five segments and an overall net sales increase. Our tonnage was down in comparison with the 14 week quarter last year, but we held our own on volumes in the face of significant pricing actions,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

Key Stats:

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the third quarter, net income rose 15.4% from the year earlier, while the figure increased 40.7% in the second quarter, 33.8% in the first quarter and 16.6% in the fourth quarter of the last fiscal year.

Gross margin shrank 1.2 percentage points to 16%. The contraction appeared to be driven by increased costs, which rose 3.5% from the year earlier quarter while revenue rose 2%.

Revenue has risen the past four quarters. Revenue increased 10.4% to $1.91 billion in the third quarter. The figure rose 15.3% in the second quarter from the year earlier and climbed 11.2% in the first quarter from the year-ago quarter.

The company has now beaten estimates the last two quarters. In the third quarter, it topped expectations with net income of 36 cents versus a mean estimate of net income of 35 cents per share.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the first quarter of the next fiscal year has moved down from 50 cents a share to 48 cents over the last ninety days. Over the past three months, the average estimate for the fiscal year has climbed from $1.72 per to share to $1.73.

Competitors to Watch: Smithfield Foods, Inc. (NYSE:SFD), Tyson Foods, Inc. (NYSE:TSN), ZHONGPIN INC. (NASDAQ:HOGS), General Mills, Inc. (NYSE:GIS), Pilgrim’s Pride Corp. (NYSE:PPC), Seaboard Corporation (AMEX:SEB), Diamond Ranch Foods, Ltd. (DRFO), ConAgra Foods, Inc. (NYSE:CAG), and Energroup Holdings Corp (ENHD).

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)