Last month, Hormel Foods Corporation (HRL) reported encouraging results for the first quarter of fiscal 2010. During the quarter, net earnings were $111.2 million, up 37% from $81.4 million in the same quarter of fiscal 2009. EPS for the quarter was 82 cents, compared to 60 cents in the year-ago quarter. It exceeded the market expectation of 68 cents per share.

Thus, the company raised its full year EPS guidance range from $2.63 to $2.73 per share to $2.68 to $2.78.


Based on the above, 9 out of 10 analysts revised their 2010 estimates upward in the last 30 days, with none moving in the opposite direction. For fiscal year 2011, 5 out of 8 analysts increased their estimates with only one analyst decreasing his or her estimate.


In the last 30 days, the Zacks Consensus Estimate for fiscal year 2010 has gone up from $2.67 to $2.76. For fiscal year 2011, the Zacks Consensus Estimate has increased from $2.89 to $2.91.


With respect to earnings surprises, Hormel’s track record in the preceding four quarters has been positive. It produced an average positive earnings surprise of 15.36% over the last four quarters, meaning that it has beaten the Zacks Consensus Estimate by that measure over the trailing 12 months. Thus, the short-term rating on the stock remains Hold with a Zacks #3 Rank.

Hormel Foods is a leading manufacturer and marketer of various meat and food products. Hormel’s plans to increase spending on advertising would help maintain and grow market share in the future.

Although the food market is highly competitive, a greater share of value-added branded products in Hormel’s product-mix will help strengthen its margins and reduce exposure to commodity prices in the long term. Thus, our long-term recommendation on the stock remains Neutral.

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