Hormel Foods Corporation (HRL) posted strong results for the first quarter of fiscal 2011 with an EPS of 55 cents compared with 41 cents in the corresponding period of fiscal 2010 based on year-over-year increases of 11.2% in revenue in the first quarter.

During the quarter, Hormel reported EPS of 55 cents, up 34.1% from 41 cents in the year-ago quarter and also up from the Zacks Consensus Estimate of 43 cents. Net income reached $148.8 million from $111.2 million in the first quarter of 2010. The increase was driven by revenue growth coupled with cost containment.

Net revenues were $1,921.6 million, up 11.2% from $1,727.4 million in the corresponding period of the previous year and $1,850 million according to the Zacks Consensus Estimate. This increase is attributable to increased revenues in Jennie-O Turkey Store and Refrigerated Foods segments.

Revenues from Jennie-O Turkey Store spiked 13.9% and Refrigerated Foods shot up by 13.3% due to the higher demand for food products based on the gradual improvement in economic conditions. Revenues from Grocery Products grew 5.8% and Specialty Foods grew 2.4% year over year.

The Refrigerated Foods segment finished the quarter with a 37.0% increase in operating profit and Jennie-O Turkey Store witnessed a strong improvement of 121.9% in profit based on the 12.0% and 10.4% year over year, respectively based on higher raw-material costs.

Selling, general and administrative (SG&A) expenses based on revenues declined by 80 basis points to reach $145.2 million.

At the end of the quarter, the company has sufficient cash and cash equivalent and marketable securities of $598.8 million, an increase from $467.8 million at the end of the previous quarter.

The EPS figures take into account the stock split, which was finally approved in February 2011.Shareholders of record as of January 31, 2011, received two common shares for each common share they currently own. After the split, the par value of the company’s common stock went down from $0.0586 to $0.0293 per share and the number of shares increased from 400 million to 800 million.

Outlook

Hormel raised its EPS guidance for fiscal 2011 and expects it in the range of $1.62 – $1.68 from $1.55 – $1.60. Thus, it is expected to rise from $1.51 in fiscal 2010. Hormel is well positioned for acquisitions to strengthen its growth profile based on its track record of successful acquisition and integration of businesses over the years. Moreover, the stock-split would definitely enhance shareholders’ confidence.

Hormel’s recent transaction includes the acquisition of Don Miguel Foods Corp., one of the leading providers of branded frozen and fresh authentic Mexican flavored appetizers and snacks.

We expect Don Miguel to help Hormel penetrate the convenience stores, club stores and supermarkets segment. Hence, we maintain our Outperform recommendation on the stock. The stock currently retains a Zacks #2 Rank (short-term Buy” rating).

 
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