Please ensure Javascript is enabled for purposes of website accessibility

Wal-Mart Stores, Inc. and Hormel Foods Corp Sink on Flat Day for Stocks

By Demitri Kalogeropoulos - May 18, 2016 at 7:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Why these two stocks badly trailed indexes on Wednesday.

Stocks were in solidly positive territory for much of the trading session on Wednesday but fell after an announcement from the Federal Reserve. A late-afternoon bounce brought indexes right back to even, though. By the closing bell the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) were essentially unchanged:

^INX Chart

^INX data by YCharts.

The Federal Reserve minutes released at 2 p.m. ET pointed to an interest rate increase next month, which helped push financial stocks higher. "Most" officials on the monetary policy committee see a June hike as appropriate, assuming economic data continues to imply steady growth, according to the report.

Meanwhile, Wal-Mart Stores (NYSE: WMT) and Hormel Foods (NYSE: HRL) each made notable moves lower on Wednesday even as the broader market ran in place.

Wal-Mart's guilt by association

Wal-Mart was the Dow's biggest loser, falling 3% after Target (NYSE: TGT) announced surprisingly weak Q1 results. Both retailing giants have enjoyed nearly two years of customer traffic gains, but Target's streak effectively ended this week – transactions rose by just 0.3% after a 1.3% rise in the prior quarter. Target's management also lowered its 2016 outlook and suggested traffic might shrink next quarter in the face of "an increasingly volatile consumer environment."

Image source: Wal-Mart.

Consensus estimates peg Wal-Mart's sales falling by 1% when the retailer posts its results on Thursday morning. Yet investors are bracing for a potentially weaker reading, along with a likely downward revision to the revenue outlook for the rest of the year.

Wal-Mart might escape the worst of the retailing downdraft thanks to the major investments it's been making in its store design, and employee wages and training. That spending is pushing profits lower, but also keeping customers coming back. Shoppers are "increasingly pleased with the changes in our stores, and they're letting us and others know through improvements in the Net Promoter Score, and improved customer experience feedback," an executive told investors in a conference call in February. We'll find out soon whether those customer satisfaction gains were enough to keep traffic edging higher in Q1.

Hormel Foods' strong quarter

Packaged foods specialist Hormel dropped 8% following a strong Q1 earnings report and an upgraded outlook for the full year. Sales ticked up by 1%, which met consensus estimates, and the 25% pop in earnings edged Wall Street forecasts that were looking for 18% growth.

Sales volume fell 1%, but that still marked an improvement over the prior quarter's 3% drop. Net income surged 20% higher, thanks mainly to lower pork costs.

Hormel sees that positive trend continuing into the final two quarters of its fiscal year, which is why management raised their earnings forecast to $1.58 per share from $1.53 per share. Its pork-heavy refrigerated foods and grocery products segments should lead the way in the back half of the year, "driving earnings increases through growth in value-added products combined with favorable input costs," Chief Operating Officer James Snee said.

Hormel's stock fell despite that all-around solid report, likely because it had enjoyed such a strong rally recently. Shares were up 37% in the year leading up to this week's earnings report, and some investors simply took the news as an opportunity to cash in on a small part of those gains.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$122.30 (0.59%) $0.72
Hormel Foods Corporation Stock Quote
Hormel Foods Corporation
HRL
$47.50 (0.30%) $0.14
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$30,627.93 (-0.48%) $-147.50
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,769.89 (-0.41%) $-15.49
Target Corporation Stock Quote
Target Corporation
TGT
$140.47 (-0.54%) $0.76

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.