CAG ConAgra Brands Inc

On August 25, Hormel Foods Corporation (HRL) posted strong results for the third quarter of fiscal 2011 with an EPS of 36 cents compared with 32 cents in the corresponding period of fiscal 2010. The recorded EPS marginally surpassed the Zacks Consensus Estimate by a penny.

Net earnings attributable to the company reached $98.5 million, up from $85.4 million in the third quarter of 2010. The increase was driven by the year-over-year earnings growth in Grocery Products and Jennie-O Turkey Store segments coupled with strong international business across all segments.

Net sales were $1,910.6 million, up 10.4% from $1,730.5 million in the corresponding period of the previous year, surpassing the Zacks Consensus Estimate of $1,881 million. This improvement can be ascribed to increased revenues, primarily in the grocery product segment and Jennie-O Turkey Store.

Revenue from Grocery Products rose 3.9% year over year while Jennie-O Turkey Store witnessed a stronger revenue improvement of 16.5%. The Refrigerated Foods segment finished the quarter with an increase of 13.2% in revenue year over year while Specialty Foods registered a rise of 5.7%. Revenue from all other items surged 32% during the reported quarter.

Operating profit for Grocery Products and Jennie-O Turkey Store spiked 18.9% and 13.7% based on increased value-added sales and improved efficiencies. However, operating profit for Refrigerated Foods reduced by 12.0% and that of Specialty Foods dropped 7.9% year over year, primarilydue to lower pork operating margins.

The gross profit was recorded at $298 million, up 5% year over year.

Selling, general and administrative (SG&A) expenses were up by 7% year on year, reaching $157 million in the reported quarter.

During 3Q11, net cash provided by operating activities was recorded at $319.4 million compared with $271.6 million in the year-ago comparable quarter. At the end of the quarter, the company has sufficient cash and cash equivalents of $497.4 million, up from $377 million at the end of the previous quarter.

The long-term debt (less current maturities) stands at $250 million at the end of the quarter. The company paid its quarterly dividend, at an annual rate of $.51, effective August 15, 2011.

Outlook: Hormel raised its full-year EPS guidance for fiscal 2011 and estimates it in the range of $1.70 to $1.75 per share from $1.67 to $1.73 per share expected earlier.

Based in Austin, Minnesota, Hormel Foods Corporation is a leading manufacturer and marketer of various meat and food products in the United States and internationally. The company faces stiff competition from ConAgra Foods Inc. (CAG), Kraft Foods Inc. (KFT) and Tyson Foods Inc. (TSN).

We currently maintain a long-term Neutral recommendation on the stock. Hormel has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

 
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