Hormel Foods (HRL) Hit By Jennie-O Turkey Trade Challenges

We issued an updated research report on premium meat products company, Hormel Foods Corporation (NYSE:HRL) , on Jul 10.

Inside Story

Hormel Foods believes that the challenges currently being faced by the company’s Jennie-O Turkey Store business segment would depress its overall fiscal 2017 results.

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 flaring up due to poor yield accrued from certain plant operations and maintenance required for bio-security measures. In addition, intense competition is triggering price pressure in the segment’s food service, retail, as well as daily business chains.

Notably, the company estimates to report earnings at the lower end of 1.65–$1.71 per share range for fiscal 2017. Additionally, headwinds such as a stronger U.S. dollar or extensive industry rivalry are predicted to thwart the company’s near-term revenues and profitability.

Over the last one month, Hormel Foods’ shares lost 3.21%, wider than the loss of 3.17% incurred by the Zacks categorized Food - Meat Products industry.

However, this Zacks Rank #3 (Hold) company intends to bolster revenues on the back of its balanced business model which is aimed at forming a diversified product portfolio. The company believes that robust demand for popular brands, such as Hormel Gatherings, Hormel Pepperoni, Hormel Natural Choice, CytoSport protein products, Justin's, Wholly Guacamole, Herdez, Spam and SKIPPY, would boost the top-line performance, moving ahead. Furthermore, increased fresh pork supply exports and higher grain prices are likely to stoke top-line growth in the near term.

Hormel Foods intends to generate revenues of $11.6 billion by fiscal 2020, estimating annualized growth of roughly 5% since fiscal 2016.

Moreover, the company plans to incur capital expenditure of $190 million in fiscal 2017. Through these investments, it intends to roll out products, conclude plant construction in China, expand several capacities for value-added products and invest in food safety. The company’s latest product categories, such as Muscle Milk yogurt and Muscle Milk bars, have been securing sturdy market response. Notably, Hormel Foods anticipates 10-15% bottom-line growth by fiscal 2020 on the back of higher innovation and diligent growth programs.

Stocks to Consider

A few better-ranked stocks in the industry are listed below:

Aramark (NYSE:ARMK) generated an average positive earnings surprise of 4.45% over the trailing 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.

B&G Foods, Inc. (NYSE:BGS) , which also has a Zacks Rank #2 at present, pulled off an average positive earnings surprise of 1.95% over the last four quarters.

Inter Parfums, Inc. (NASDAQ:IPAR) currently holds a Zacks Rank #2 and has an average positive earnings surprise of 15.58% for the last four quarters.

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