Meat and food products company, Hormel Foods Corporation (HRL - Free Report), reported mixed first-quarter fiscal 2018 results (ended January 2018).

Earnings/Revenues

Adjusted earnings in the reported quarter came in at 56 cents per share, outpacing the Zacks Consensus Estimate as well as the year-ago tally of 44 cents per share.

Net sales in the fiscal first quarter came in at $2,331.3 million, missing the Zacks Consensus Estimate of $2,403 million. However, the top line came in 2.2% higher than the year-ago tally.

Segmental Break-Up

In the reported quarter, revenues from Grocery Products inched up 0.6% to $613.9 million.

Revenues at the Jennie-O Turkey Store segment dropped 7.2% to $390.6 million.

The company’s Refrigerated Foods segment generated revenues of $1,176.5 million, up 4.8% year over year.

International & Other revenues were up 19.5% to nearly $150.3 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 first quarter, Hormel Foods’ cost of sales went up 5.9% year over year to $1,829.1 million. Gross margin contracted 270 basis points (bps) to 21.5%.

Selling, general and administrative expenses totaled $219.1 million, up from $210.2 million recorded in the comparable period last fiscal.

The company’s operating margin came in at 13.2%, shrinking 240 bps year over year.

Balance Sheet/Cash Flow

Exiting the fiscal first quarter, Hormel Foods had cash and cash equivalents of $385.8 million, up from $444.1 million as of Oct 29, 2017. However, the company’s long-term debt came in at $624.7 million (excluding current maturities), up from $250 million reported as of Oct 29, 2017.  

In the first three months of fiscal 2018, Hormel Foods generated cash of $304.2 million from operating activities, significantly up 55.8% year over year. Capital expenditure on purchase of property and plant summed $52.9 million compared with $34 million incurred in the prior-year period.

Outlook

Hormel Foods noted that the U.S. Tax Cuts and Jobs Act will help boost its profitability in the upcoming quarters. This Zacks Rank #3 (Hold) company intends to finance near-term growth initiatives with the cash proceeds secured as a result of reduced corporate tax rates. Notably, the company will invest portions of its aggregate tax benefit over existing workforce and shareholders.

However, it noted that the prevalent turkey market challenges and escalating freight costs might continue to hurt the company’s results in the near future.

Based on the existing market conditions, the company reaffirmed its sales guidance for 2018 in the $9.7-$10.1 billion range. However, adjusted earnings view for fiscal 2018 has been raised to the band of $1.81-$1.95 per share, higher than the prior guidance of $1.62-$1.72 per share.

Stocks to Consider

Craft Brew Alliance, Inc. (BREW - Free Report) carries a Zacks Rank of 2 (Buy). The company pulled off a stellar average positive earnings surprise of 250.20% over the last four quarters. 

Blue Buffalo Pet Products, Inc. (BUFF - Free Report) also has a Zacks Rank of 2. It generated an average positive earnings surprise of 3.14% over the trailing four quarters.

Church & Dwight Company, Inc. (CHD - Free Report), another Zacks Rank #2 company, recorded an average positive earnings surprise of 6.61% during the same time frame.