History of negative earnings surprises
Hormel Foods (HRL) continues to disappoint investors with its sales and earnings results. The company has generated negative earnings surprises in the past four quarters. A negative earnings surprise means that the company’s adjusted EPS missed the analysts’ estimate. Moreover, the company’s sales came in below the analysts’ estimates in the past two quarters.
Adjusted volume declines in three of its key business segments and higher raw material prices continue to pressure the company’s sales and EPS. Meanwhile, the tepid performance of the Specialty Foods segment driven by a significant decline in Muscle Milk ready-to-drink protein beverages, increased competitive activity in the convenience store channel, lower pricing, and challenges in international markets, especially China (FXI), pose a threat to its financials.
Soft EPS outlook
Given the challenging operating environment and expected rise in commodity prices, the company lowered its EPS forecast for fiscal 2017. Management stated that higher input costs will continue to pressure earnings in fiscal 2017. Meanwhile, the benefits of the company’s price restructuring will take time to impact its financials materially. The company now projects its EPS to be in the range of $1.54 to $1.58, down from its earlier expectation of the low end of $1.65 to $1.71.
However, operational improvements, strong demand for pork, and reduction in advertising expenses are likely to boost its profitability.