Thursday morning, Hormel Foods (HRL -10.25%) published its latest earnings release, and few investors found it tasty. Although the company edged past the consensus analyst estimate for profitability, it missed on revenue and cut full-year guidance. Mr. Market punished it, trading the stock down more than 10% on the day.
Net sales dipped
Hormel’s fiscal third-quarter net sales came in at $2.96 billion, down 2% year over year. This was on the back of a more than 7% drop in sales volume, to 969 million pounds.
Image source: Getty Images.
By contrast, net income not under generally accepted accounting principles (non-GAAP, or adjusted) rose by almost 4% to $202 million, or $0.37 per share.
That meant Hormel missed the $3.05 billion collective analyst projection for net sales, but topped the $0.35 per share net income consensus.
In the earnings release, the company quoted CEO John Ghingo as explaining that “the results reflected the impacts of portfolio-shaping actions, lower commodity-based pricing in portions of the business and a consumer environment that remains under pressure.”
On a brighter note, he added that “several of our retail priority brands delivered growth, and food service once again outperformed industry trends, supported by the strength of our solutions-based offerings and operator partnerships.”
Today’s Change
(-10.25%) $-2.43
Current Price
$21.28
Key Data Points
Market Cap
Day’s Range
$21.27 – $23.39
52wk Range
$19.70 – $26.60
Volume
18.6M
Avg Vol
4.8M
Gross Margin
15.46%
Dividend Yield
4.92%
Guidance adjusted
Nevertheless, Hormel cut its net sales guidance for the current fiscal year, to $12.1 billion to $12.2 billion. That’s down from the previous range of $12.2 billion to $12.5 billion. Management also added $0.02 per share to the bottom end of its adjusted earnings forecast, for an updated range of $1.45 to $1.51 per share.
Hormel’s stock price has largely eroded over the past few years, so investors aren’t in a forgiving mood these days.
While it maintains a huge business and is free cash flow positive, one of its major appeals might not be sustainable. It’s a Dividend King (i.e., it has raised its payout at least once annually for a minimum of 50 consecutive years) with a yield of 5.5%. Yet its payout ratio is awfully high. This, plus Hormel’s recent performance, makes the stock a miss for me.
