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Did Hormel Foods’ Stock Benefit from Its Fiscal 3Q16 Results?

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Market’s reaction to earnings

Hormel Foods (HRL) reported its earnings for fiscal 3Q16, which ended July 24, on August 18 before the Market opened. Management discussed the company’s fiscal 3Q16 performance during a conference call after the Market opened. The stock rose 2% on the day. Earnings and revenue beat estimates. The company raised its fiscal 2016 guidance. We’ll discuss the results later in this series.

Hormel rose another 7% on August 22 and closed at $39.51. Hormel has risen 11% since the company’s last earnings report on May 18. The exceptional third quarter results seem to have benefited the stock. We just have to wait and see if this will be a turnaround for the stock. It was on a declining trend until yesterday. So far, the stock had fallen 5% in 2016 as of August 18.

The stock rose ~53% in 2015 due to high earnings growth, good cash flow from operations, and a solid financial position with reasonable debt levels. Hormel rose more toward the end of 2015 when avian influenza fears started to dissipate.

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On January 27, the company announced shareholders’ approval of the split—it went into effect on February 9. Hormel didn’t react much that day, but it rose 2% the next day. It has risen 3% since then and closed at $39.51 on August 22. The Market, represented by the S&P 500 Index (SPY), outperformed Hormel Foods by 7% as of August 22.

Peers’ stock performances

Hormel is based in Austin, Minnesota. It operates through five segments to produce and market various meat and food products worldwide.

Following are the stock reactions of Hormel’s peers to earnings results:

  • Tyson Foods (TSN) reported its 3Q16 results on August 8 and rose 1%.
  • Pilgrim’s Pride (PPC) reported its 2Q16 results on July 28 and fell 2%.

The Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS) invests 2.8% of its portfolio in Hormel and 3.3% in Tyson, respectively. RHS has returned 10.6%, while the S&P 500 Index (SPY) has returned 7% so far in 2016.

What to look for in this series

In the next part of this series, we’ll explore how Hormel Foods performed in fiscal 3Q16. We’ll also look at the company’s revenue trend and explore what helped its revenue in fiscal 3Q16. We’ll see how much Hormel Foods’ margins rose for the quarter, its recent dividend paid, and the company’s raised guidance for fiscal 2016. Finally, we’ll take a look at Wall Street analysts’ recommendations for Hormel after the earnings release and its valuation.

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