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When millions of Americans sit down for Thanksgiving dinner on Thursday, it’s very likely that at least one, but possibly more, Hormel Foods (NYSE: HRL) products will be a part of the festivities. After all, Hormel is the food giant behind Jennie-O turkey, along with other popular products like Spam and Chi-Chi’s.
Hormel reported better-than-expected quarterly earnings on Tuesday, and the company is hoping Americans get their fill this Thanksgiving.
Record Financial Performance in Fiscal 2015
Hormel reported record earnings of $0.74 per share in the fourth quarter, up 17% year-over-year. That easily beat Wall Street expectations of $0.68 per share, although Hormel’s revenue of $2.4 billion came in just shy of the $2.54 billion projected. For the full year, earnings came in at a record $714 million, up 19% from the previous year.
Hormel sees a year of robust growth ahead and raised its fiscal 2016 expectations. The company forecasts full-year earnings between $2.85-$2.95 per share. This is well ahead of the average analyst estimate of just $2.83 per share.
One of the biggest contributors to Hormel’s strong performance was the newly acquired Applegate Farms, a producer of deli meats, hot dogs, bacon and sausage. Applegate does not use antibiotics, hormones or artificial ingredients. Hormel bought Applegate in May for $775 million.
Hormel’s purchase of Applegate was a play on the health and wellness trend that is currently sweeping across America. Applegate is a leading organic foods company and is enjoying rapid growth.
Last quarter, Hormel’s refrigerated foods segment grew operating profit by 27%, year-over-year, due largely to the Applegate acquisition. This segment provides nearly half of Hormel’s revenue, which means continued growth in this category will be a substantial tailwind heading into 2016.
One risk that investors should take note of is the Jennie-O division. This business has not performed well so far this year. Last quarter, operating profit there declined 23%. The outbreak of the avian influenza virus had a terrible impact. Flocks lost earlier in the year created large volume shortfalls.
Hormel is working to restore inventories in time for the crucial Thanksgiving holiday. But investors should be aware of the risk that supply will not meet demand again this quarter, which is a significant risk for the current quarter.
Fortunately, contributions from Hormel’s high-growth acquisition, as well as its other core brands, should be enough to offset weakness in its turkey business.
Long-Term Growth Trend Should Continue
Hormel is counting on Americans to load up on turkey this Thanksgiving to restore growth in its Jennie-O segment, and if that indeed occurs, it should continue the company’s long-term track record of strong growth. According to the company, it achieved 12% annual earnings growth from 2009 to 2014.
If Hormel has another year of growth in store for investors, the company will have little trouble raising its dividend again next year. Over time, it has rewarded shareholders with a steadily-rising dividend. In fact, Hormel has paid 350 consecutive quarterly dividends without interruption, dating all the way back to 1928.
Along with its quarterly earnings, Hormel increased its dividend by 16%. It has now raised its dividend for an impressive 50 years in a row. That makes it a part of the exclusive Dividend Aristocrat list, and a top dividend growth stock that investors should consider.
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