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Hormel Foods in Fiscal 2016: What’s the Raised Guidance?

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Outlook for fiscal 2016

Hormel Foods (HRL) has raised its fiscal 2016 EPS (earnings per share) guidance range to $1.50–$1.56. The earlier EPS guidance range was $1.43–$1.48. This represents a 14%–18% rise in EPS over fiscal 2015. Management mentioned in the fiscal 1Q16 press release that strong earnings in the Refrigerated Foods, Grocery Products, and Specialty Foods segments, along with positive momentum in the Jennie-O Turkey Store segment, led to the raised guidance range. The company has invested about $2.8 billion in growing its business. It plans to add capacity for its value-added products and spend $2.1 billion in strategic acquisitions.

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Hormel Foods expects favorable input costs to benefit the Refrigerated Foods, Grocery Products, and Specialty Foods segments. It also projects pork operating margins to be adequate as fiscal 2016 shows signs of progress. Further, the company anticipates its turkey production to return to the normal level of 5%–6% by the end of fiscal 2Q16. This would lead to strong growth for the Jennie-O Turkey Store segment in the second half of fiscal 2016. The International & Other segment is expected to report improved performance with rising sales of Skippy peanut butter and the Spam family of products.

To drive revenue growth, Hormel Foods is investing in new advertising campaigns for its products, including Skippy PB Bites, Hormel pepperoni, and Muscle Milk protein products. Hormel Foods’ effective tax rate is estimated to be in the range of ~33.5%–34% in fiscal 2016, and the company expects to have capital expenditures of ~$250 million in fiscal 2016.

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Increased dividend

The company announced a 16% rise in its annual dividend before its fiscal 4Q15 results. The annual dividend has risen 16% to $0.58 per share for fiscal 2016. This rise in dividend marked the 50th consecutive annual dividend increase. The first quarterly dividend of fiscal 2016 was $0.14 per share and was paid on February 16, 2016, to stockholders of record at the close of business on January 19, 2016. Hormel has a dividend yield of 1.2%, as of yesterday. The company’s management has been raising the dividend consistently for the last five years. The dividend has risen at an average annual rate of 18.1%.

Competitors

Hormel’s competitors in the industry include B&G Foods (BGS), Pinnacle Foods (PF), and Cal-Maine Foods (CALM). They have seen year-to-date returns of 4.6%, -3.4%, and 5.8%, respectively, as of yesterday. The PowerShares Dynamic Large Cap Growth Portfolio (PWB) invests 1.5% of its holdings in HRL, and the PowerShares Dynamic Food & Beverage Portfolio (PBJ) invests 2.5% of its holdings in CALM.

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