Despite an earnings report from Hormel Foods
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
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.
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.