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​Hormel Foods issues solid FQ4 results, raises dividends

Hormel Foods (HRL), a premium multinational manufacturer and marketer of consumer-branded food and meat products, issued solid financials for its fiscal 2016 fourth quarter ended October 30. Revenues increased 9.5% y-o-y to $2.63 bn, in line with consensus estimate. Refrigerated Foods segment garnered revenues of $1.24 m, up 7.6%. Revenues at Jennie-O Turkey Store segment jumped 28.8% to $541.4 mn supported by increased sales of Jennie-O branded foodservice products and recovery from Avian Influenza. Revenues from Grocery Products rose 16.4% to $491.7 mn driven by the inclusion of Justin’s LCC and higher demand for brands like Skippy and Spam. Operating income jumped 25% to $365.8 mn, and operating margin expanded 170 basis points to 13.9%. Adjusted earnings per share grew 21.6% to 45 cents missing analysts’ average projection by a penny.

Hormel Foods ended the reported quarter with cash and cash equivalents of $415.1 mn (up from $347.2 mn in the year-ago quarter) and long-term debt of $250 mn (mostly unchanged). On November 21, the company declared a 17% hike in its annual dividend to 68 cents per share, which offers a healthy dividend yield of 1.9%.

On November 21, Hormel Foods’ also announced that it had inked a definitive agreement with the pork giant Smithfield to sell its Saag’s and Farmer John meat brands and three farming operations located in Arizona, California and Wyoming, for $145 mn. The deal is expected to close by the end of 2016 and has been undertaken for freeing up productive resources as these businesses are not in sync with the company’s ongoing corporate growth strategies.

Hormel Foods issued optimistic guidance for fiscal 2017. The company anticipates boosting its revenues in the upcoming fiscal year on the back of higher demand for its food services as well as retailing products. In addition, recovering market conditions of China are also likely to drive top-line growth. The company plans to generate organic sales growth of 5% and projects earnings within the range of $1.68-1.74 per share in fiscal 2017.

Shares of Hormel Foods are trading above $35 support level and, I believe, are well positioned for a rebound. Medium-term target is $42.

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