Despite reporting record second-quarter results, Hormel Foods (HRL) neglected to impress. The meat maker's earnings missed the mark concerning consensus estimates, while a powerless direction for the current fiscal year didn't improve the situation either. Besides, as competitors such as Tyson Foods (TSN) and Pilgrim's Pride (PPC) are aggressively looking to secure more companies and stretch their business, Hormel's troubles may increase going ahead.
A mixed quarter
Hormel's revenue jumped 14% to $2.45 billion, which was more than analysts' estimates of $2.24 billion. Anyhow, in spite of a considerable increase in revenue, its volumes decreased 1% from the year-prior period because of an increase in prices of hamburger, pork, and different commodities.
Notwithstanding, Hormel's earnings didn't develop at the pace expected by the Street as a result of an increase in hamburger prices and a shortage in swine supplies. A savage virus slaughtered millions of American pigs and Hormel's performance was harmed as a result.
A couple of positives
The climb in costs forced Hormel to raise the prices of some of its products. These include Hormel bean stew and Dinty Moore stew. What's more, it also increased the prices of its Wholly Guacamole products. Consequently, these items saw a decline in sales. Anyhow, SKIPPY nutty spread, Hormel bacon toppings, and the HERDEZ line of products performed well.
The organization propelled its new item SKIPPY Singles peanut spread last quarter that drove sales. Moreover, Hormel also saw strength in its nourishment service business.
Also, Hormel's worldwide business turned in a solid performance, determined by the inclusion of its SKIPPY operations in China. What's more, SKIPPY peanut spread and fresh pork saw strong fare numbers from China.
Then again, going ahead, the organization expects its margins stay under pressure because of hoisted costs of hamburger, pork, turkey, and avocado. The expansion of the SKIPPY peanut spread business will help the organization offset some of these general info cost pressures, however increased rivalry in the industry can kill this playing point.
Tyson Foods, as of late, has won the bartering to gain Hillshire Brands for $7.7 billion. As indicated by Tyson administration, the Hillshire acquisition will empower it to slash $300 million in costs every year. So, the Hillshire acquisition, when complete, will permit it to cut costs further.
Tyson beat Pilgrim's Pride in the bartering to get Hillshire. Then again, Pilgrim's Pride administration will keep scouting for other meat and chicken processors to extend its arrive at in areas where it has constrained presence.
Pilgrim's, as of now, has a strong position in the nourishment service and retail channels. It supplies products to the likes of Sysco, Conagra, Yum! Brands, Burger King, and so forth. Subsequently, an acquisition will empower it to further improve its position in the industry.
Hormel is persevering through an extreme time. Despite the fact that the company reported solid growth in its budgetary performance last quarter, it may not have the capacity to sustain it going ahead. An increase in prices has officially gouged sales, and competitors' moves can confuse things further. So, investors should consider staying far from Hormel as it would appear that a risky wager close to 52-week highs.