CAG ConAgra Brands Inc

Hormel Foods Corporation (HRL) posted strong results for the second quarter of fiscal 2011 with an EPS of 40 cents compared with 34 cents in the corresponding period of fiscal 2010 based on a year-over-year increase of 15.3% in revenue in the second quarter.

During the quarter, Hormel reported EPS of 40 cents, up 17.6% from 34 cents in the year-ago quarter and in line with the Zacks Consensus Estimate of 40 cents. Net income reached $109.6 million up from $91.3 million in the second quarter of 2010. The increase was driven by revenue growth coupled with cost containment.

Net revenues were $1,959.0 million, up 15.3% from $1,699.8 million in the corresponding period of the previous year and $1,816 million as per the Zacks Consensus Estimate. This improvement can be ascribed to increased revenues in all the revenue segments of the company.

Revenues from Jennie-O Turkey Store spiked 25.1% and Refrigerated Foods shot up by 16.5% due to the higher demand for food products based on the gradual improvement in economic conditions. Revenues from Grocery Products grew 1.4% and Specialty Foods grew 4.1% year over year.

The Refrigerated Foods segment finished the quarter with a 26.5% increase in operating profit and Jennie-O Turkey Store witnessed a strong improvement of 45.2% in profit. Operating profit for Grocery Products rose 18.2% while Specialty Foods registered a 10.9% decline.

Selling, general and administrative (SG&A) expenses based on revenues declined by 40 basis points to reach $160.1 million.

At the end of the quarter, the company has sufficient cash and cash equivalents and marketable securities of $964.7 million, up from $598.8 million at the end of the previous quarter.

Outlook

Hormel raised its EPS guidance for fiscal 2011 and estimates it in the range of $1.67-$1.73 from $1.62-$1.68 expected earlier. Thus, the company projects a rise in its estimate from $1.51 in fiscal 2010. Input costs are expected to remain high for the fiscal year. Having a sound track record of successful acquisition and integration of businesses, Hormel is now all set to strengthen its growth profile through acquisitions.  Moreover, the stock-split would definitely enhance shareholders’ confidence.

The company faces stiff competition from ConAgra Foods Inc.(CAG), Kraft Foods Inc. (KFT), and Tyson Foods Inc. (TSN). We currently maintain a Neutral recommendation on the stock.

 
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