Hormel Foods Hikes Dividend; Shares Sink On Dismal 4Q Results

Hormel Foods shares were down 3.6% in pre-market trading on Tuesday as the packaged foods company lagged analysts’ expectations for the fourth quarter of FY20 (ended Oct. 25). Ahead of the results, the company announced a 5.4% increase in its annual dividend to $0.98. The new quarterly dividend of $0.2450 will be paid on Feb. 16, 2021 to shareholders of record at the close of business on Jan. 11, 2021. Hormel has a dividend yield of 1.85%.

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Meanwhile, Hormel Foods’ (HRL) 4Q FY20 sales fell 3.3% year-over-year to $2.42 billion while EPS was down 8.5% to $0.43. Analysts expected sales of $2.59 billion and EPS of $0.44. The company’s performance was impacted by lower sales in its domestic foodservice channel due to the pandemic. Notably, the U.S. retail net sales and U.S. deli net sales grew 7% and 1%, respectively, while U.S. foodservice net sales dropped 23% in 4Q. Meanwhile, international net sales rose 2% year-over-year.

Speaking about FY21, CEO Jim Snee stated, “I am optimistic about generating sales and earnings growth in fiscal 2021. Our One Supply Chain team delivered steady production improvements throughout the quarter, and our production capacity for key product lines is structurally higher as we move into next year. The balance we have across the retail, deli, foodservice and international channels gives us confidence in our ability to perform well in many different economic scenarios.”

However, the CEO cautioned, “This most recent surge of COVID-19 cases in communities does create a level of uncertainty in a number of areas, notably labor availability, customer demand and raw material markets.” (See HRL stock analysis on TipRanks)

In September, Seaport Global analyst Eric Larson initiated coverage of Hormel Foods with a Hold rating. While Larson believes that the company remains a best-in-class operator with a strong balance sheet, active innovation pipeline, strong supply chain cost savings and a keen focus on margin accretive product mix, he feels that the current risk/reward trade-off is unfavorable in the near-term.

The Street is also sidelined on Hormel Foods, with a Hold analyst consensus based on 1 Buy and 5 Holds. Shares have risen 11% year-to-date. The average price target of $50.25 indicates that the shares are fully priced at current levels.