Will Hormel Foods Follow Tyson Higher or Kraft Lower?

Hormel Foods (NYSE: HRL  ) will release its quarterly report on Tuesday, and investors haven't been sure whether to be pleased or worried about what they'll see. Although the stock has outperformed rival Kraft Foods (NASDAQ: KRFT  ) recently, it's fallen well behind the big rise in Tyson Foods (NYSE: TSN  ) so far in November. What will Hormel have in store for investors?

Hormel is probably best known among most Americans for its Spam canned meat products, but the company offers a wide range of packaged meats distributed through grocery chains nationwide. With the sale of Smithfield Foods to China's Shuanghui earlier this year, investors started paying more attention to meat processors like Hormel and Tyson, and Tyson in particular has reacted well to the changing conditions in the industry. By contrast, Kraft Foods hasn't performed nearly as well, suggesting that conditions more broadly in the domestic grocery-foods front aren't as favorable. Kraft has a much more widely varied array of products beyond meat than Hormel and Tyson do, and it's exposed to a much broader set of price pressures for the many types of crops and other raw materials it needs to buy to produce its popular food lines. Can Hormel keep growing in those mixed conditions? Let's take an early look at what's been happening with Hormel Foods over the past quarter and what we're likely to see in its report.

Stats on Hormel Foods

Analyst EPS Estimate

$0.54

Change From Year-Ago EPS

10.2%

Revenue Estimate

$2.30 billion

Change From Year-Ago Revenue

6%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Will Hormel earnings finally start sizzling this quarter?
Analysts have had generally favorable views on Hormel earnings in recent months, raising estimates for the quarter ended in October and full-year fiscal 2014 by a penny per share each. The stock has largely stayed flat, though, rising less than 1% since late August.

Hormel has seen mixed results recently in its various segments. In results for its quarter ended in July, Hormel reported strong gains in operating profits and sales volumes for its grocery-products segment and its international division, with sales of Skippy-brand peanut butter contributing strongly to those gains. Yet weak volumes and profits in its refrigerated foods division held back the company's overall results, given that the segment represents half of Hormel's net sales. Hormel kept its guidance steady for the rest of fiscal 2013.

The key to Hormel's success has been emphasizing high-margin products that make the most of its distribution capacity. Compared to Tyson and fellow meat processor Pilgrim's, Hormel's margins are large, and the company has a healthier balance sheet to help investors avoid any concerns about excessive debt.

Still, competition remains fierce. With up-and-comer Hillshire Brands seeking to make acquisitions to boost its size in the industry, Hormel will have to deal with yet another threat to add to Tyson, Pilgrim's, and the new Shuanghui-Smithfield combination. Meanwhile, Kraft will look to prove that it isn't a no-growth dead end for investors, perhaps by making forays of its own on the merger and acquisition front.

In the Hormel earnings report, watch to see what impact the company sees from the completion of the Shuanghui-Smithfield acquisition. As the industry changes, Hormel will have to respond to new conditions effectively in order to keep up with Tyson and stay ahead of Kraft.

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