Challenging Input Cost Environment Leads to a Soft Quarter for Hormel; Shares Fairly Valued
We anticipate trimming our $34.50 per share valuation for narrow-moat Hormel by up to 5% after it reported soft third-quarter earnings and reduced its fiscal 2017 adjusted diluted EPS guidance to $1.54-$1.58 from $1.65-1.71; we had been at the low end of the range. Management cited rising costs (outside of the turkey) as a key cause of the disappointing results. We had expected normalizing input prices to pressure long-term profitability, with our (still intact) long-term forecast calling for 14...Hormel Foods is primarily engaged in the production of meat and food products and the marketing of those products throughout the United States and internationally. The company's segments are: Grocery Products, which consists of the processing, marketing, and sale of shelf-stable food products; Refrigerated Foods, which consists of the processing, marketing, and sale of branded and unbranded pork, beef, chicken, and turkey products; Jennie-O Turkey Store, which consists of the processing, marketing, and sale of branded and unbranded turkey products; and International and Other, which includes Hormel Foods International Corporation that manufactures, markets, and sells the company's products internationally.
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