Meat and food products company, Hormel Foods Corporation HRL, reported weaker-than-expected results for second-quarter fiscal 2018 (ended April 2018).

Earnings/Revenues

Adjusted earnings in the reported quarter came in at 44 cents per share, missing the Zacks Consensus Estimate by a penny. However, the bottom line came in higher than the year-ago figure of 39 cents per share.

Net sales in the fiscal second quarter came in at $2,330.6 million, missing the Zacks Consensus Estimate of $2,390 million. However, the top line came in 6.5% higher than the year-ago tally.

Segmental Break-Up

In the reported quarter, revenues from Grocery Products edged down 1.4% to $631.6 million. Revenues at the Jennie-O Turkey Store segment dropped 4.2% to $371.9 million. The company’s Refrigerated Foods segment generated revenues of $1,167 million, up 13.6% year over year. International & Other revenues were up 22.1% to nearly $160.1 million.

Hormel Foods Corporation Price, Consensus and EPS Surprise

Hormel Foods Corporation Price, Consensus and EPS Surprise | Hormel Foods Corporation Quote

Costs/Margins

In the fiscal second quarter, Hormel Foods’ cost of sales went up 7.9% year over year to $1,833.9 million. Gross margin contracted 100 basis points (bps) to 21.3%. Selling, general and administrative expenses totaled $203.8 million, up from $181 million recorded in the comparable period last fiscal. The company’s operating margin came in at 13.1%, shrinking 130 bps year over year.

Balance Sheet/Cash Flow

Exiting the fiscal second quarter, Hormel Foods had cash and cash equivalents of $261.6 million, from from $444.1 million as of Oct. 29, 2017. Long-term debt came in at $624.8 million (excluding current maturities), up from $250 million reported as of the end of fiscal 2017.

In the first half of fiscal 2018, Hormel Foods generated cash of $443.3 million from operating activities, significantly up 58% year over year. Capital expenditure on purchase of property and plant summed $134.7 million compared with $75.8 million incurred in the prior-year period.

Outlook

Hormel Foods has reaffirmed its earnings and sales guidance for fiscal 2018 (ending October 2018). This Zacks Rank #3 (Hold) company projects revenues of $9.7-$10.1 billion and earnings in the $1.81-$1.95 per share band, for the current fiscal. Stronger demand for major brands will likely boost the company’s near-term revenues but prevalent turkey market challenges remain concerns.

Stocks to Consider

Some better-ranked stocks in the Zacks Consumer Staples sector are listed below:

Inter Parfums, Inc. IPAR sports a Zacks Rank #1 (Strong Buy). The company pulled off an average positive earnings surprise of 11.82% over the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pilgrim's Pride Corporation PPC holds a Zacks Rank #2 (Buy). It generated an average positive earnings surprise of 11.07%, over the trailing four quarters.

United Natural Foods, Inc. UNFI also carries a Zacks Rank of 2. It generated an average positive earnings surprise of 10.74%, during the same time frame.