Hormel Loves Its Spam

Despite an earnings report from Hormel Foods (NYSE: HRL  ) that looked a little lean, hungry investors nibbled on the shares enough to send the price 1.1% higher.

Earnings fell about 5%, to $0.41 a share, as the company contended with high costs for beef, pork, and chicken. The company did increase prices, but not enough to offset the difference. Ultimately, the results didn't meet the company's original guidance but were at least in line with Wall Street's expectations. But the operating margin came in at 4.1%, a showing that should bode well for the company going forward.

Hormel also affirmed its outlook for the fourth quarter, when it expects to earn $0.62-$0.68 a share. It also expects to introduce higher-margin products, in hopes of offsetting the higher commodity prices, and has already started down that path by emphasizing items such as precooked bacon and sausage. Going the precooked route has certainly worked for Smithfield Foods (NYSE: SFD  ) , which posted a nice earnings gain this quarter.

Hormel's refrigerated-foods segment did well, with a 9.1% increase in the top line. That's good, since this segment accounts for more than half the company's sales.

While investing in a stock before the pig leaves the barn can be risky, Hormel does have some solid brands to fall back on, including Spam. And yesterday, the company announced that it will acquire Burke, a private company that makes pizza toppings and other fully cooked meat products, for $110 million. That should make for a nice fit with Hormel's existing products. Hormel expects Burke to produce annual sales of $125 million, so it seems to be paying an attractive price for the company.

Despite yesterday's rise, however, the stock is still trading at an attractive P/E of 17. It may be time to dig in.

Related Foolishness:

Take a bite of Motley Fool Stock Advisor, where Tom and David Gardner have loaded up on tasty recommendations for your portfolio. The first 30 days won't cost you a penny.

Fool contributor Lawrence Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. He doesn't have any positions in the companies mentioned.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 535372, ~/Articles/ArticleHandler.aspx, 9/19/2014 4:17:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement