Why Hormel Foods Corp's Shares Plunged 11% in May

By Markets Fool.com

Image source: Hormel Foods.

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What: Shares of Hormel Foods Corp fell 10.8% in May, according to data provided by S&P Global Market Intelligence, after reporting mixed earnings in the fiscal second quarter.

So what: Sales rose 1%, to $2.3 billion, but volume was down 1%, and was only made up for by rising prices. Net income was up 19.5%, to $215.4 million, or $0.40 per share. Earnings per share topped analysts' $0.38 estimate, but revenue fell short of the $2.33 billion expected

What caught the market's attention was sequentially falling margins highlighted by a drop in refrigerated food profit margin, from 14.4% to 11.9%. Rising costs could be a problem throughout 2016, and that's what had investors concerned in May.

Now what: The food business can see margins rise and fall depending on commodity prices, and Hormel's role as a processor usually takes the brunt of those changes. But the company still holds a strong market position, and will be around for decades to come. Shares aren't cheap at 24 times trailing earnings; but given the staying power of Hormel, I wouldn't be afraid of the short-term challenges the company may face with higher costs this year.

The article Why Hormel Foods Corp's Shares Plunged 11% in May originally appeared on Fool.com.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.