Hey, Turkey Day is just around the corner. So, let's talk turkey.
When turkey producers come to mind, do companies such as Pilgrim's Pride (NYSE:PPC) and all its turkey restructuring charges fill your mind, too? Yes, that turkey operation has been a turkey for some time, although it's starting to come back to life.
Fast-forward to today's turkey feast, Hormel Foods (NYSE:HRL). Hormel might be famous for pork products and SPAM, but Jennie-O Turkey roosts at Hormel, too.
Hormel's latest quarterly earnings release shows revenue up 15% but net income down 1% from the comparable quarter last year.
Gobbling up most of the good news was Jennie-O, with 24% of sales and 25% of operating profits. Jennie-O sales for the quarter flew up 18.3%, and operating profits soared 86.4%. Leading the strong results were turkey bacon (who would have guessed?) and marinated tenders.
Laying an egg was refrigerated foods (48% of sales; 31% of operating profits). Its 19.9% sales gain looks great until you notice the 25.4% decline in operating profits. Operating margin fell from 9.6% to 6%. The company qualified this by saying that 6% margins are closer to normal and that last year's results were atypically good.
Peck through last year's report and you'll find what management had to say: "We expect the performance of our Refrigerated Foods and Jennie-O Turkey Store segments to reflect the improvements we have made to the product mix within these segments over the last couple of years." There is no warning there about better-than-"normal" results.
One place the company didn't miss the mark was estimated earnings -- and that is what counts. Guidance for 2004 was $1.44 to $1.60 a share (up from $1.33). Even with the fourth quarter's poor profit performance, earnings still came in at $1.65 a share. Guidance for 2005 is $1.65 to $1.75 a share.
Hormel's 8.3% 2004 operating margins compare favorably to pork processor Smithfield Food's (NYSE:SFD) 3.1%. They're also above packaged-food giant ConAgra's (NYSE:CAG) 7.8%. Investors can sleep easy, too, because Hormel, compared to these competitors, has a very strong balance sheet (with a small net debt) and pays a nice 1.7% dividend.
Hormel is up 12.6% over the last 52 weeks -- in line with the S&P 500's performance. Since the stock trades at 19 times earnings, and the company expects earnings (at best) to increase no more than 6%, getting market-average returns might prove difficult.
Hey, it's Thanksgiving time. Want to discuss The Art of Fun(ky) BBQ or Recipes and Cooking? Or, how about visiting the Hormel discussion board the talk about the strong sales results for the new Jenny-O oven-ready turkey that goes directly from the freezer to the oven to your table in 3.5 hours? The Motley Fool discussion boards give investors the opportunity to discuss a wide range of topics with other investors.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
