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

We issued an updated research report on premium meat products company, Hormel Foods Corporation (NYSE:HRL) on Aug 14.

Inside Story

Hormel Foods’ top- and bottom-line results in second-quarter fiscal 2017 (ended Apr 30, 2017) were largely hurt due to challenges faced by the Jennie-O Turkey Store business segment. Fall in turkey prices, extensive competition and elevation in overall operating expenses have been weighing over this segment's results.

Hormel Foods noted that turkey prices (especially turkey breast meat) went down during the fiscal second quarter. 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 escalating due to poor yield accrued from certain plant operations and maintenance required for certain bio-security measures.

In addition, Hormel Foods conducts its business in a highly competitive market. Pilgrim's Pride Corporation (NASDAQ:PPC) , Tyson Foods, Inc. (NYSE:TSN) and Sanderson Farms, Inc. (NASDAQ:SAFM) are some major business players of the industry. Intense competition has been putting price pressure on Jennie-O Turkey Store business’ food service, retail, as well as daily business chains.

Hormel Foods expects the aforementioned headwinds to depress its overall fiscal 2017 performance. Notably, the company currently estimates to report earnings at the lower end of the $1.65–$1.71 per share range for fiscal 2017.

Furthermore, we believe that a stronger U.S. dollar might dent Hormel Foods’ international revenues and margins, moving ahead. Moreover, prices of various raw materials used by the company, such as beef, pork and poultry, are exposed to market fluctuations due to supply-demand inconsistencies.

Additionally, outbreak of livestock diseases is expected to give rise to sudden supply-chain challenges for the company in the near term.

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