Investment research report for HRL

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Hormel Foods Corporation (HRL) is a leading global branded food company, primarily focused on the production and marketing of high-quality, value-added meat and food products. The company operates through three segments: Retail, Foodservice, and International. Its portfolio includes well-known brands such as SPAM, Jennie-O, Hormel, Applegate, and Planters.

Key Strengths

  • Diversified business model across segments, channels, and geographies
  • Strong brand portfolio with pricing power and consumer loyalty
  • Consistent financial performance and shareholder returns
  • Strategic investments in capacity, automation, and operational efficiency

Growth Opportunities

  • Expansion in international markets, particularly in Asia
  • Innovation and product development in growth categories like snacking and plant-based proteins
  • Strategic acquisitions to enhance product offerings and market reach

Potential Challenges

  • Inflationary pressures on input costs and supply chain disruptions
  • Competitive landscape and evolving consumer preferences
  • Regulatory and legal risks related to antitrust allegations

Overall, Hormel Foods Corporation appears well-positioned for long-term growth, driven by its diversified business model, strong brand portfolio, and strategic initiatives. However, the company will need to navigate near-term challenges effectively to drive sustainable value creation for long-term investors.

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Valuation Analysis

PE ratio

  • Low: 19.542768125635376
  • Base: 23.557378569639756
  • High: 27.571989013644135

PB ratio

  • Low: 2.6676025092617
  • Base: 3.573169941936146
  • High: 4.478737374610592

EPS Growth

  • Low: -4.36%
  • Med: -1.87%
  • High: 0.16%

DPS Growth

  • Low: 8.19%
  • Med: 8.87%
  • High: 9.52%

FCF Growth

  • Low: -2.61%
  • Med: 0.17%
  • High: 2.39%

Value forecast by FCF

  • Low: 13.29
  • Med: 15.44
  • High: 17.49

Value forecast by EPS

  • Low: 12.13
  • Med: 13.82
  • High: 15.44

Value forecast by DPS

  • Low: 24.55
  • Med: 25.58
  • High: 26.59

The current price for HRL is $30.37.

Price target for 18 months from now

  • Low: 27.73
  • Med: 27.97
  • High: 28.20

Price target for 4 years from now

  • Low: 23.32
  • Med: 23.97
  • High: 24.59

Price target for 10 years from now

  • Low: 12.74
  • Med: 14.37
  • High: 15.93

The net present value multiplier discounted at 10.22% gives the value of the stock as:
– Low: 0.42
– Med: 0.47
– High: 0.52

The upside/downside ratio is 0.26, and our rating is Strong Sell.

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Industry and Competitors Analysis

Packaged Foods Industry

Based on the information provided, HRL (Hormel Foods Corporation) operates in the packaged foods industry, which includes companies that manufacture and market various food products, such as meat, nuts, snacks, and shelf-stable items.

Major Competitors

Some of HRL’s major competitors in this industry include:

  1. Campbell Soup Company (CPB)
  2. General Mills, Inc. (GIS)
  3. Kellogg Company (K)
  4. Lamb Weston Holdings, Inc. (LW)
  5. The J. M. Smucker Company (SJM)
  6. Conagra Brands, Inc. (CAG)
  7. The Kraft Heinz Company (KHC)

These companies offer a wide range of products, including soups, cereals, snacks, frozen foods, coffee, and condiments, among others.

Competitive Positioning

In terms of competitive positioning, HRL appears to be a mid-sized player in the industry, with a market capitalization of around $17 billion and revenue of $12.1 billion in 2023. While it is smaller than some of the larger players like General Mills, Kellogg, and Kraft Heinz, it has a strong presence in the meat and protein-based products segment, with well-known brands like SPAM, Hormel, and Jennie-O.

HRL’s financial metrics, such as gross profit ratio, EBITDA ratio, and net income ratio, are generally in line with or slightly lower than some of its peers, suggesting a relatively stable but potentially less profitable position compared to some of the larger companies in the industry.

Conclusion

Overall, HRL seems to be a well-established player in the packaged foods industry, with a focus on meat and protein-based products, competing against larger diversified food companies as well as other specialized players in the meat and snack segments.

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Chart of Competitors

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Financial Analysis

Financial Strength

The company has maintained a relatively low debt-to-equity ratio over the years, indicating a conservative capital structure and financial discipline. The current ratio is also healthy, suggesting good liquidity.

Return on equity and return on assets have been consistently positive, though showing some volatility year-over-year. This indicates the company is generally profitable and efficient in utilizing its assets and equity.

Potential for Growth

Revenue growth has been modest and inconsistent over the past few years, with some periods of decline. However, analyst estimates suggest expectations of moderate revenue growth in the coming years.

The company has been increasing its dividends per share over time, which could signal management’s confidence in future cash flows and earnings growth.

Competitive Advantage

Hormel Foods has a diverse portfolio of well-known brands like SPAM, Skippy, Jennie-O, and Applegate, which could provide some competitive advantage and pricing power in the consumer packaged foods market.

The company’s focus on innovation, product development, and expanding into new categories (e.g., plant-based proteins) could help maintain its competitive position.

Quality of Management

The company’s ability to maintain profitability and generate positive cash flows, even during challenging periods, suggests competent management.

However, the inconsistent revenue growth and occasional declines in profitability metrics could raise some questions about management’s ability to drive consistent top-line growth.

Shareholder Friendliness

Hormel Foods has a long history of paying dividends and has been increasing its dividend per share over time, which is generally viewed as shareholder-friendly.

The company’s share repurchase activity has been relatively modest, but it does return some cash to shareholders through this method as well.

Valuation

The company’s price-to-earnings and price-to-free-cash-flow ratios have fluctuated over the years, sometimes appearing relatively high compared to historical levels, which could indicate periods of overvaluation or high growth expectations.

Analyst estimates for future earnings suggest a forward P/E ratio in the mid-to-high teens, which could be considered reasonable for a consumer staples company with moderate growth prospects.

Overall, Hormel Foods appears to be a financially stable and shareholder-friendly company with a strong brand portfolio and competitive position in the consumer packaged foods industry. However, its growth prospects may be somewhat limited, and management’s ability to drive consistent top-line growth could be a potential area of concern. A balanced analysis of the company’s strengths, weaknesses, and growth opportunities would be advisable for investment decisions.

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Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

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Chart of Absolute Metrics

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Earnings Call Multi-Year Analysis

Diversified and balanced business model

Hormel has a diversified portfolio across segments (retail, foodservice, international), brands (value to premium), proteins, and geographies. This balanced model has proven resilient in navigating market volatility and economic cycles.

Strong brand portfolio and pricing power

Hormel has a robust portfolio of leading brands like SPAM, SKIPPY, Jennie-O, and Planters that command strong consumer loyalty and pricing power. The company has been able to implement strategic pricing actions to offset inflationary pressures.

Supply chain optimization and cost management

Hormel has made significant investments in supply chain optimization, automation, and cost reduction initiatives like “One Supply Chain.” These efforts have improved efficiencies and helped mitigate inflationary pressures.

Strategic acquisitions and growth initiatives

The company has pursued strategic acquisitions like Planters and undertaken initiatives like the transformation of Jennie-O Turkey Store to optimize its portfolio and drive long-term growth.

International expansion

Hormel sees significant growth opportunities in international markets, particularly in Asia, and has been expanding its presence and brand awareness in these regions.

Disciplined capital allocation

Hormel maintains a strong financial position, allowing it to invest in growth initiatives while also returning capital to shareholders through dividends and share repurchases.

Transparency and communication

The company has been transparent in communicating challenges, strategies, and progress, providing valuable insights for long-term investors.

Overall, Hormel’s diversified business model, strong brand portfolio, supply chain optimization efforts, strategic growth initiatives, and disciplined capital allocation position it well for long-term sustainable growth, despite near-term challenges like inflationary pressures and operational disruptions.

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Financial Statements Multi Year

Revenue and Earnings Growth

Hormel has demonstrated consistent revenue growth over the years, achieving record sales in recent fiscal years. However, earnings growth has been more muted due to inflationary pressures and higher costs.

Diversified Business Model

Hormel operates through three main segments – Retail, Foodservice, and International – providing diversification across sales channels and geographies. This diversification helps mitigate risks.

Strategic Acquisitions

The acquisition of Planters snack nuts business in 2021 expanded Hormel’s presence in the growing snacking space, contributing to revenue growth.

Profitability Challenges

While Hormel remains profitable, segment profits have faced pressure due to higher input costs, supply chain disruptions, and unfavorable product mix in certain periods.

Operational Initiatives

Hormel is undertaking initiatives like enterprise transformation, capacity expansions, and automation to drive operational efficiencies and cost savings.

Shareholder Returns

Hormel has a strong track record of returning cash to shareholders through consistent dividend increases and share repurchases.

Financial Strength

The company maintains a solid financial position with a strong balance sheet, ample liquidity, and manageable debt levels.

Risks and Challenges

Key risks include ongoing inflationary pressures, supply chain disruptions, labor shortages, and legal/regulatory issues related to antitrust allegations.

Overall, Hormel’s diversified business model, strategic acquisitions, operational initiatives, and commitment to shareholder returns position it well for long-term growth. However, the company needs to navigate near-term profitability challenges and mitigate risks effectively to drive sustainable value creation for long-term investors.

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Insider Trading Analysis

The CEO (James P. Snee) and CFO (Steven J. Lykken) have been actively trading their shares over the past few years. Snee has received large stock option and restricted stock awards, while Lykken has exercised and sold options.

Other senior executives like Mark A. Coffey (EVP), Kevin L. Myers (SVP), and Elsa A. Murano (Director) have also been regularly trading their shares through a mix of option exercises, stock awards, and open market sales.

The Hormel Foundation, which owns a significant stake in the company, has also been making periodic transfers of shares.

Short-term Implications

The recent insider activity suggests a mix of portfolio diversification and compensation-related transactions, rather than any clear directional view on the stock.

The CEO and other top executives continue to hold substantial equity stakes, indicating their alignment with long-term shareholder interests.

The volume and frequency of the trades do not point to any major concerns or unusual activity that would raise red flags for investors.

Overall, the insider trading patterns at Hormel Foods appear to be routine and in line with the company’s compensation practices and the executives’ personal financial management. There is no clear indication of insiders taking advantage of material non-public information or making trades that would be concerning for long-term or short-term investors.

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Management Compensation Benchmark Analysis

Base Salary Composition

Based on the executive compensation details provided for Hormel Foods Corporation (HRL), the average percentage of base salary out of total compensation for HRL executives across all years is 23.601%. This is higher than the average for Campbell Soup Company (CPB) at 20.381% and General Mills, Inc. (GIS) at 17.591%, but lower than Kellogg Company (K) at 26.686% and The J.M. Smucker Company (SJM) at 26.231%. This suggests that HRL’s executive compensation structure has a relatively higher base salary component compared to some peers, but not the highest.

CEO Compensation Structure

The base salary portion of total compensation for the CEO of HRL (James P. Snee) has ranged from 9.40% to 13.45% over the years, which is on the lower end compared to other key executives at HRL as well as the CEO compensation structures at the benchmark companies. This indicates that a larger portion of the CEO’s total pay is tied to variable, performance-based components.

Other Key Executives’ Compensation

The base salary portions for other key HRL executives like the CFO, Executive Vice Presidents, and Group Vice Presidents range from around 15-28%, which is more in line with the benchmark companies.

Alignment with Shareholder Interests

There appears to be a consistent use of stock awards and incentive plan compensation as part of the total executive compensation structure at HRL, aligning the interests of executives with long-term shareholder value creation.

Overall Assessment

Overall, the executive compensation at HRL seems to strike a reasonable balance between fixed and variable pay components, with a focus on aligning executives’ interests with long-term performance. This compensation structure is in line with, or slightly more shareholder-friendly than, the benchmark companies reviewed. A long-term investor could view this as a positive indicator for HRL’s corporate governance and focus on sustainable value creation.

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Proxy Statement Analysis

Executive Compensation Structure

The compensation program includes base salary, annual cash incentives tied to annual performance metrics, and long-term equity incentives (performance shares and stock options) that vest over multi-year periods. This structure aims to balance short-term and long-term incentives.

Performance Metrics

The annual incentive plan uses metrics like earnings per share growth, sales growth, and return on invested capital, which are aligned with profitability and efficient capital allocation. The long-term incentive plan uses relative total shareholder return and earnings per share growth, which incentivize long-term value creation.

Equity-Based Compensation

A significant portion of executive compensation is in the form of performance shares and stock options, which vest over multi-year periods. This helps align executives’ interests with long-term shareholder value.

Stock Ownership Guidelines

The company has robust stock ownership guidelines for executives, requiring them to hold a significant amount of Hormel stock, further aligning their interests with shareholders.

Clawback Policy

Hormel has a clawback policy that allows the company to recoup incentive compensation in the event of financial restatements or misconduct, promoting accountability and integrity.

Overall, the executive compensation program appears to be structured in a way that incentivizes executives to focus on long-term growth, profitability, and shareholder value creation through a combination of performance metrics, equity-based compensation, and ownership requirements.

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News Analysis

Positives

Hormel is a Dividend King, having raised its dividend for over 50 consecutive years, providing reliable income for investors. Its dividend yield is relatively high at around 2%.

As a consumer staples company selling shelf-stable products like Spam, Hormel has defensive characteristics that can help weather economic downturns.

Recent earnings reports showed strength in areas like foodservice, snacking (Planters peanuts), and branded packaged foods as demand increased during the pandemic.

Hormel has been innovating with new product launches, plant-based offerings, and expanding into faster-growing categories beyond just meat products.

The company has a strong brand portfolio and pricing power to help offset higher input costs.

Potential Negatives

Hormel faces input cost pressures from inflation and supply chain disruptions that could pressure margins if not fully offset by pricing.

There are concerns about slowing volume growth, especially in the retail grocery channel, as pandemic-driven demand moderates.

The valuation is not as attractive as in the past after the stock’s run-up, with some analysts suggesting the shares are overvalued currently.

Competition is increasing in plant-based alternatives from larger players like Beyond Meat.

In summary, Hormel’s long dividend growth history, defensive characteristics, and efforts to innovate are positives. But investors need to watch costs, competitive dynamics, and valuation going forward. A long-term view may be warranted given Hormel’s status as a Dividend King.

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Technical Indicators Analysis

Moving Averages

Moving averages are a widely used technical indicator that help smooth out price data and identify the overall trend direction. They can be calculated using different time periods, such as 50-day, 100-day, or 200-day moving averages. Analyzing the relationship between these moving averages can provide insights into the strength and direction of the trend.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. It oscillates between 0 and 100, with readings above 70 generally considered overbought and readings below 30 considered oversold. The RSI can be used to identify potential support or resistance levels and to confirm the strength of a trend.

MACD (Moving Average Convergence Divergence)

The MACD is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD line is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A nine-period EMA of the MACD, called the “signal line,” is then plotted on top of the MACD line, which can be used to generate buy and sell signals.

Bollinger Bands

Bollinger Bands are a technical analysis tool that plot two standard deviation lines above and below a simple moving average of a security’s price. The bands adjust to volatility, narrowing during periods of low volatility and widening during periods of high volatility. Analyzing the relationship between the price and the Bollinger Bands can provide insights into the security’s momentum and potential support or resistance levels.

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Chart of Valuation History

"Chart of Valuation History"

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Consistent Growth and Scale

Hormel Foods has achieved over $12 billion in annual revenue for the second consecutive year, demonstrating its ability to grow and maintain scale in the highly competitive food industry.

Diversified Business Model

The company’s transition to a new operating model with three reportable segments – Retail, Foodservice, and International – provides diversification across sales channels and geographies, reducing reliance on any single business area.

Profitability Challenges

While the company remains profitable, segment profit declined 11% in fiscal 2023 due to lower results in the Retail and International segments. This highlights the need to closely monitor profitability across the diversified business lines.

Shareholder Returns

Hormel has a strong track record of returning cash to shareholders through consistent dividend increases, marking the 58th consecutive annual dividend hike. This demonstrates the company’s commitment to shareholder value creation.

Strategic Investments

The company’s $426 million investment in Garudafood, a food and beverage company in Indonesia, expands its presence in the growing Southeast Asian market and supports its global snacking and entertaining strategic priority.

Operational Efficiency Initiatives

The company’s enterprise transformation and modernization initiative, expected to deliver cost savings and operating efficiencies by fiscal 2026, is a positive step towards improving long-term profitability.

Debt Management

Hormel’s balanced approach to capital allocation, including maintaining a strong balance sheet and manageable debt levels, provides financial flexibility to pursue strategic opportunities.

The company faces various legal proceedings and regulatory risks, particularly related to antitrust allegations in the pork and turkey industries. Careful monitoring of these issues will be important for long-term investors.

Overall, Hormel Foods’ diversified business model, focus on shareholder returns, strategic investments, and operational efficiency initiatives position the company well for long-term growth, though near-term profitability challenges and legal/regulatory risks warrant close attention.

Financial Statements Annual 2023 Q2

Strong Financial Performance

Hormel achieved its third consecutive year of record net sales in fiscal 2022, reaching $12.5 billion, a 9% increase over the prior year. Net earnings increased 10% compared to fiscal 2021, benefiting from the inclusion of the Planters snack nuts business, profit growth in the JennieO Turkey Store segment, and higher sales across the foodservice businesses. Diluted earnings per share for fiscal 2022 was $1.82, compared to $1.66 in the prior year.

Segment Performance

The JennieO Turkey Store segment saw a significant increase in earnings due to higher commodity prices and foodservice sales. The Refrigerated Foods segment profit increased, driven by strong results from the foodservice businesses, offsetting higher operational and logistics costs. The Grocery Products segment profit declined as the contribution from the Planters snack nuts business was more than offset by inflationary pressures and lower results from MegaMex. The International & Other segment profit declined due to lower results from the export business, which was negatively impacted by logistics challenges and higher freight and warehouse expenses.

Operational Highlights

The Company invested $279 million in capital expenditures, including investments in new production capabilities, capacity expansions, and automation projects. The Company announced a new strategic operating model, transitioning to three operating segments – Retail, Foodservice, and International – effective in fiscal 2023. The Company expects sales and earnings growth in fiscal 2023, benefiting from higher brand investment, increased production capacity, and pricing actions.

Financial Position and Capital Allocation

The Company maintained a strong financial position, with $982 million in cash and cash equivalents and $3.3 billion in long-term debt. The Company returned a record amount of cash to shareholders through $558 million in dividend payments, representing a 6% increase over the prior year. The Company did not repurchase any shares of stock during fiscal 2022 but continues to evaluate share repurchases as part of its capital allocation strategy.

Overall, Hormel demonstrated resilience and adaptability in navigating a challenging operating environment, delivering strong financial results and positioning the business for continued growth through strategic investments and operational improvements.

Financial Statements Annual 2022 Q2

Strong Financial Performance

Hormel achieved record sales of $11.4 billion in fiscal 2021, a 19% increase from fiscal 2020. Organic volume and organic net sales increased 1% and 14% respectively. Net earnings were in line with the prior year, as improved volume and sales were unable to offset higher costs from inflation on raw materials, freight, labor, and supplies. Diluted earnings per share for fiscal 2021 was $1.66, flat compared to the prior year.

Segment Performance

The Grocery Products segment profit increased due to the addition of the Planters snack nuts business and improved organic sales. The Refrigerated Foods segment profit increased as higher earnings from the foodservice business and pricing actions offset higher raw material, freight, and operational costs. JennieO Turkey Store earnings declined due to higher feed costs and increased freight expenses. The International & Other segment profit improved significantly driven by gains from exports, higher income from international joint ventures, and strong results in China.

Acquisition and Integration

Hormel acquired the Planters snack nuts business for $3.4 billion in June 2021, which expanded its presence in the growing snacking space. The acquisition contributed $410.8 million in net sales since the date of acquisition. Acquisition-related costs and accounting adjustments totaled $43.2 million in fiscal 2021.

Capital Allocation and Shareholder Returns

Capital expenditures in fiscal 2021 were $232 million, including investments in capacity expansion and automation. The annual dividend for 2022 will be $1.04 per share, representing a 6% increase and the 56th consecutive annual dividend increase.

Outlook and Risks

Hormel expects all four segments to deliver sales and earnings growth in fiscal 2022, with the Planters business, pricing actions, and improved production throughput as key drivers. Risks include industry-wide labor shortages, additional inflationary pressures, and further supply chain disruptions.

Overall, Hormel delivered a solid financial performance in fiscal 2021, with the acquisition of Planters and strong demand across its businesses. However, the company faces challenges from inflation and supply chain disruptions that could impact profitability going forward.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Solid financial performance

The company reported diluted net earnings per share of $0.34 for the second quarter, down 15% year-over-year, but adjusted diluted EPS of $0.38 was in line with the prior year. This indicates the company is maintaining profitability despite some headwinds.

Diversified business model

The company’s three segments – Retail, Foodservice, and International – provide diversification, with the Foodservice and International segments seeing improved results offsetting a decline in the Retail segment. This diversification helps mitigate risks.

Strong cash flow and liquidity

Cash flow from operations was $640 million in the first six months, up 55% year-over-year. The company has a strong balance sheet with $1.5 billion in cash and cash equivalents and access to a $750 million credit facility, providing ample liquidity and financial flexibility.

Disciplined capital allocation

The company continues to invest in capital expenditures to support growth, while also returning cash to shareholders through a growing dividend (58 consecutive annual increases). This balanced approach to capital allocation is prudent.

Ongoing transformation initiatives

The company is undertaking a multi-year “transform and modernize” initiative, which is resulting in some non-recurring costs but is expected to deliver cost savings and operational improvements over time. Successful execution of this initiative could enhance the company’s competitiveness.

Contingent liabilities

The company has ongoing legal proceedings related to pork and turkey antitrust allegations. While the company has recorded provisions for settlements, the ultimate outcome and impact on the business remains uncertain.

Overall, the company appears to be navigating a challenging operating environment well, maintaining profitability, generating strong cash flow, and investing for the future, which should support long-term shareholder value creation.

Financial Statements Quarterly 2024 Q1

Revenue growth

Net sales increased 0.9% in the quarter, driven by higher volumes across all segments, particularly in Foodservice. This indicates the company is maintaining growth momentum.

Profitability

Gross profit margin improved to 17.0% from 16.7% a year ago, due to lower logistics costs in the Foodservice and Retail segments. Adjusted earnings before income taxes increased 5.2%, showing the company is managing costs effectively.

Segment performance

  • Retail segment profit declined 3.3% due to lower commodity turkey pricing and lower equity earnings from the MegaMex joint venture, despite higher sales in snacking and entertaining products.
  • Foodservice segment profit increased 10.1% on higher sales and favorable logistics costs.
  • International segment profit increased 0.6% with the inclusion of the Indonesia investment and higher results from the Philippines partnership, offsetting lower branded exports and China sales.

Cash flow and liquidity

Operating cash flow increased 98% year-over-year to $404 million, driven by inventory management and working capital improvements. The company has a strong balance sheet with $963 million in cash and access to a $750 million credit facility.

Capital allocation

The company paid $150 million in dividends in the quarter, continuing its track record of returning cash to shareholders. It also approved up to $500 million in new long-term financing to fund the maturity of $950 million in notes due in June 2024.

Overall, the financial statements show Hormel is navigating the current environment well, maintaining growth, profitability, and a healthy balance sheet. The diversified business model and focus on cost management are key strengths for a long-term investor.

Financial Statements Quarterly 2023 Q4

Consistent Revenue and Earnings Growth

Hormel has demonstrated relatively stable revenue and earnings growth over the past several years, despite some short-term fluctuations. This suggests the company has a resilient business model and is able to navigate market challenges.

Diversified Business Segments

Hormel operates across three main segments – Retail, Foodservice, and International. This diversification helps mitigate risks and provides opportunities for growth in different markets.

Strong Cash Flow and Balance Sheet

Hormel generated $729 million in operating cash flow over the first nine months of fiscal 2023, demonstrating its ability to consistently generate cash. The company also maintains a strong balance sheet with $753 million in cash and short-term investments.

Shareholder Returns

Hormel has a long history of paying and increasing its dividend, with the current annual dividend rate of $1.10 per share representing the 57th consecutive annual dividend increase. The company has also repurchased shares, though at a modest pace.

Inflationary Pressures

Like many food companies, Hormel has faced inflationary pressures on input costs, which have pressured gross margins. However, the company has been able to partially offset these impacts through pricing actions.

Operational Challenges

The company has faced some operational challenges, including supply chain disruptions and the impact of highly pathogenic avian influenza, which have weighed on volumes in certain segments.

Adverse Arbitration Ruling

The unexpected $700 million adverse arbitration ruling is a significant one-time charge that will impact the company’s near-term financial performance, though it does not appear to be an ongoing operational issue.

Overall, Hormel remains a well-diversified, cash-generative food company with a strong brand portfolio and market positions. While facing some near-term headwinds, the company’s long-term fundamentals appear intact, making it an attractive investment for patient, long-term investors.

Financial Statements Quarterly 2023 Q3

Revenue and Volumes Declined

Net sales and volumes declined for each of the company’s three segments (Retail, Foodservice, and International) in the second quarter and first half of fiscal 2023. This was primarily due to lower fresh pork availability from the company’s new pork supply agreement and lower turkey volumes from the ongoing impacts of highly pathogenic avian influenza (HPAI).

Profitability Pressures

Gross profit margin declined in the second quarter and first half, driven by unfavorable product mix and persistent inflationary pressures, despite pricing actions. Segment profit also declined, with the Retail and International segments seeing the largest decreases.

Mitigating Factors

The company was able to partially offset the profitability pressures through lower selling, general and administrative expenses and significantly higher equity earnings from the MegaMex Foods joint venture. The Foodservice segment also saw an increase in segment profit.

Cash Flow and Capital Allocation

Operating cash flow declined 29% year-over-year in the first half, primarily due to changes in working capital. The company used cash to purchase a 30% stake in Indonesian company Garudafood for $426 million. Capital expenditures remained focused on capacity expansion projects.

Outlook

The company expects continued profitability pressures in the third quarter, with the Retail and International segments expected to see declines in segment profit, while the Foodservice segment is expected to improve. Risks include softer consumer demand, higher-than-expected operating costs, and continued disruption in the company’s turkey supply.

Overall, the financial statements indicate near-term challenges from volume and mix pressures, as well as ongoing inflationary impacts. However, the company’s diversified business model, focus on strategic investments, and cost management efforts provide some mitigation. A long-term investor would want to monitor the company’s ability to navigate the current operating environment and position itself for future growth.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Broad-based strength across segments

The company delivered strong performance in Q1 with volume growth in each of its business segments – Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other. This demonstrates the strength of the company’s diversified business model.

Supply chain improvements

The company made significant progress in improving its supply chain, leading to lower freight and warehousing expenses, lower distressed sales, and higher fill rates. This suggests the company is effectively managing its operations.

Transformation and modernization initiative

The company is making good progress on its transformation and modernization initiative, which is expected to drive at least $200 million in operating income by 2026. This indicates the company is taking proactive steps to improve its long-term profitability.

Risks from turkey business

The company highlighted incremental earnings pressure from its whole bird turkey business, which is expected to have a $0.15 per share impact for the full year. This suggests the company is facing some headwinds in a specific part of its operations.

Cautious consumer environment

While the company is seeing strong performance in many areas, it is closely monitoring the consumer environment, as some categories are showing weakness. This suggests the company is aware of potential macroeconomic challenges.

Analyst questions imply

The analysts are probing for more details on the company’s pricing strategy, raw material cost dynamics, and the potential impact of macroeconomic factors on the company’s performance. This indicates that investors should closely monitor these areas as well.

Overall, the company appears to be executing well on its strategic priorities, but it is also navigating some challenges, particularly in its turkey business and the broader consumer environment. Long-term investors should closely monitor the company’s progress on its transformation initiatives, its ability to manage supply chain and input costs, and its response to changing market conditions.

Earnings Call Analysis 2024 Q1

Underlying business growth

Excluding the significant headwind from the turkey business, Hormel’s underlying portfolio, especially in the Retail segment, is expected to show volume growth in fiscal 2024. This suggests the core business remains strong.

Pricing and elasticity

Hormel is being cautious and targeted with pricing actions, mindful of consumer elasticity which has returned to pre-COVID levels. They are focusing on optimizing promotions and trade spend to drive growth.

Transformation and modernization

Hormel is investing significantly (around $250 million over 3 years) to transform and modernize the organization, which is expected to drive $200 million+ in operating income growth by fiscal 2026. This suggests a long-term focus on improving efficiency and capabilities.

Turkey market volatility

The rapid decline in the commodity whole turkey market is a major near-term headwind, adding significant uncertainty to Hormel’s outlook. Their ability to navigate this volatile market will be crucial.

International recovery

Hormel expects its international business to start recovering after a challenging Q1 2024, driven by improvements in branded exports and the China market. The pace of this recovery will be important to monitor.

Foodservice strength

Foodservice remains a bright spot, with Hormel confident in its ability to drive continued growth in key categories like bacon, pepperoni and turkey. Leveraging innovation and digital capabilities in this channel is a priority.

Overall, the key is Hormel’s ability to execute its transformation initiatives while navigating near-term market volatility, especially in turkey. The long-term focus on brand investment, efficiency, and international expansion suggests a strategic vision to drive sustainable growth.

Earnings Call Analysis 2023 Q4

Inventory Management

The company has made progress in reducing elevated inventory levels, which was a key near-term challenge. They expect further declines in inventory in Q4 and to achieve their target day sales in inventory by year-end.

Planters Business

The Planters snack nuts business is showing improvement, with increased shipments, positive consumption data, and successful launch of new flavored cashew products. The company is investing in innovation, advertising, and promotional support to drive growth in this key business.

Supply Chain and Cost Savings

The company is making progress on improving its supply chain, with higher fill rates and executing on cost reduction projects. They expect to realize incremental freight and indirect supply savings in Q4 and have longer-term strategic projects to further unlock earnings growth.

International Segment Weakness

The International segment has remained challenged, with unfavorable commodity markets, softness in China, and lower branded export demand. This is a key area of concern and the company is working to address the situational dynamics.

Retail Segment Pressures

The Retail segment is facing heightened competition and promotional activity as consumer demand moderates. The company is focused on effective execution, innovation, and brand support to navigate this environment.

Turkey Business Recovery

The recovery in the turkey business has been slower than expected, impacting the outlook. The company is investing to drive consumer engagement and regain distribution, but near-term challenges remain.

Implied Guidance Range

The wide range in the Q4 revenue guidance and the narrower EPS range suggests uncertainty around commodity and input cost volatility, which could impact the mix and margins.

Overall, the company is making progress on addressing near-term challenges, but faces some external headwinds that are impacting the near-term outlook. The long-term investor should focus on the company’s ability to navigate these dynamics, continue investing in its brands, and execute on its strategic initiatives to drive sustainable growth.

Earnings Call Analysis 2023 Q3

Inventory Management

Hormel has taken proactive steps to address elevated inventory levels, including selling excess non-productive inventory, slowing manufacturing, and improving demand and supply planning processes. This had a margin impact in the quarter but is expected to provide benefits in fiscal 2024 through better process control, lower freight/warehousing costs, and higher investment income.

Margin Improvement

Hormel is focused on improving its margin structure through inflation-justified pricing actions, optimizing promotional and advertising spend, and implementing cost reduction projects across procurement, manufacturing, and logistics. These efforts are expected to gradually improve margins in the back half of the year.

Planters Turnaround

Hormel has regained significant distribution and placements for the Planters brand, introduced new innovations, and shifted promotional resources to drive consumption. Early data indicates the brand is outpacing the category, representing a positive proof point in the turnaround.

Turkey Supply Recovery

The impact of highly pathogenic avian influenza (HPAI) on Hormel’s turkey supply chain appears to be minimal, and the company expects a strong rebound in turkey volumes in the back half of the year to offset prior headwinds.

Balanced Business Model

Hormel’s diversified portfolio across retail, foodservice, and international segments, as well as its exposure to both premium and value-tier products, has helped the company navigate the dynamic consumer environment.

Cautious on Pricing

Hormel is being mindful in its approach to pricing, working closely with retail partners to protect margins while also considering consumer affordability. The company is leveraging promotions, advertising, and in-store activation to drive category growth.

Capital Allocation

Hormel maintains a strong financial position, allowing it to fund strategic investments while also returning cash to shareholders through dividends and opportunistic share repurchases.

Overall, Hormel appears to be taking proactive steps to address near-term challenges, while also positioning the business for long-term growth through initiatives like the Planters turnaround and supply chain optimization.

Earnings Call Analysis 2023 Q2

Supply chain challenges and inventory misalignment

Hormel has faced challenges in aligning its supply with demand, leading to inefficiencies and higher operating costs. The company is now focused on selling excess inventories and reducing reliance on third-party warehouses and co-packers to restore profitability.

Persistent inflationary pressures

Hormel continues to face high inflationary pressures, particularly in its retail businesses, and is implementing additional pricing actions to help mitigate the impact.

Planters business challenges

The Planters business is off to a slower-than-expected start in 2023, with the company taking immediate action to address the current challenges, stabilize the top line, and grow the consumer base.

Diversification and long-term growth

Despite the current challenges, Hormel remains a significantly larger and more balanced company compared to two years ago, with continued investments in technology, capacity, and capabilities to position the business for long-term growth.

Transparency and communication

Hormel has been transparent in communicating the challenges it is facing and the actions it is taking to address them. The company’s willingness to provide detailed information and insights into its operations is a positive for long-term investors.

Overall, the key insights suggest that Hormel is facing short-term operational challenges, but the company’s long-term strategic positioning and commitment to transparency are positive indicators for long-term investors.

Earnings Call Analysis 2023 Q1

Balanced business model

Hormel has a balanced business model not heavily dependent on any one channel, protein, input or product category, which has helped it navigate volatile market conditions.

Pricing actions and elasticity

Hormel has taken significant pricing actions across its portfolio, but is closely monitoring price gaps and consumer elasticity. The impact of pricing on volumes is a key uncertainty.

Turkey business challenges

The turkey business faces significant headwinds from highly pathogenic avian influenza (HPAI), higher feed costs and pension expenses, which are expected to be a $0.15 per share headwind in fiscal 2023.

Supply chain and cost savings

Hormel is focused on reducing costs and inefficiencies through its “One Supply Chain” initiative, which it expects will help mitigate some of the inflationary pressures over time.

International and foodservice growth

Hormel expects its international and foodservice segments to be the key drivers of earnings growth in fiscal 2023, as the retail segment faces more near-term challenges.

New operating model

Hormel’s transition to a new strategic operating model with three segments (retail, foodservice, international) is aimed at better aligning its structure with its strategy, though the financial implications are still unclear.

Overall, the analysts seem to be closely watching Hormel’s ability to navigate the volatile cost environment, manage the challenges in the turkey business, and execute on its new operating model to drive long-term sustainable growth.

Earnings Call Analysis 2022 Q4

Strong Execution and Resilience

Hormel Foods has demonstrated strong execution and resilience, delivering 7 consecutive quarters of record sales and 4 quarters of earnings growth despite challenging operating conditions.

Balanced Business Model and Diversified Portfolio

The company’s balanced business model and diversified portfolio have allowed it to offset significant inflationary pressures and supply chain disruptions. However, escalating operational, logistical and input cost headwinds have impacted the back half of 2022.

Long-Term Outlook and Growth Drivers

The company is optimistic about the long-term outlook, expecting brand performance, supply chain improvements, and benefits from the new “Go Forward” operating model to drive sustainable growth in line with its long-term targets.

New Operating Model

The transition to the new operating model is a strategic evolution to better align the business to customer and consumer needs, simplify the go-to-market approach, and enable faster decision-making. This is expected to be a key driver of future growth.

Focus on Long-Term Management

The company remains focused on managing the business for the long-term, with continued investment in capacity, automation, and supply chain optimization to improve operational efficiency and mitigate cost pressures.

Analyst Perspectives

Analysts probed for more details on the impact of the operating model change, cost inflation dynamics, and the outlook for margins and volume recovery, suggesting these will be important factors to monitor going forward.

Overall, the company appears to be taking the right strategic actions to navigate the current challenges and position itself for long-term success, though near-term cost pressures remain a headwind.

Earnings Call Analysis 2022 Q3

Balanced and diversified business model

Hormel has built a balanced and diversified business model across channels (retail, foodservice, e-commerce), brands (value to premium), and geographies (domestic and international). This has helped the company navigate market volatility and business fluctuations.

Strong brand portfolio and innovation

Hormel has a portfolio of leading brands like SKIPPY, SPAM, Hormel, Jennie-O, etc. that have shown resilience to pricing actions. The company continues to invest in brand building and innovation to drive growth.

Supply chain challenges and inflation management

The company is facing significant inflation across inputs like raw materials, packaging, freight, and labor. It has been able to manage these challenges through strategic pricing actions, product mix shifts, and supply chain improvements. However, the impact of avian influenza on the Jennie-O Turkey Store segment remains a near-term uncertainty.

Disciplined capital allocation

Hormel remains committed to maintaining an investment-grade rating and deleveraging the balance sheet post the Planters acquisition. It will repurchase shares opportunistically based on internal valuation.

ESG commitments and employee development

Hormel continues to make progress on its ESG goals and has launched initiatives like the Inspired Pathways free community college program for employee development.

Overall, the company’s balanced business model, strong brand portfolio, and disciplined management have enabled it to navigate the current challenging environment. However, the impact of avian influenza on the Jennie-O Turkey Store segment remains a near-term risk that investors should monitor.

Earnings Call Analysis 2022 Q2

Balanced business model

Hormel has a balanced business model across different segments (Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, International & Other) which has allowed it to deliver strong results despite a complex operating environment.

Pricing power and brand strength

Hormel has been able to implement pricing actions across its portfolio to offset inflationary pressures. Its leading brands like SPAM, SKIPPY, Jennie-O have strong consumer demand and pricing power.

Supply chain challenges

Hormel has faced significant supply chain disruptions and labor shortages, which have impacted its ability to fully meet elevated demand across its businesses. However, the company expects these challenges to ease over time.

International growth opportunities

Hormel sees long-term growth potential in its international business, particularly in China and other Asian markets, despite some near-term headwinds.

Jennie-O Turkey Store transformation

Hormel is undertaking a strategic transformation of its Jennie-O Turkey Store business to optimize the portfolio, improve profitability and reduce earnings volatility. This includes integrating the business more closely with the broader Hormel organization.

Disciplined capital allocation

Hormel remains committed to maintaining an investment-grade rating and deleveraging its balance sheet. It will continue to invest in growth initiatives and return capital to shareholders through dividends.

Overall, the company’s diversified portfolio, pricing power, and strategic initiatives suggest it is well-positioned to navigate the current challenges and deliver long-term growth for investors.

Earnings Call Analysis 2022 Q1

Pricing Power and Demand Resilience

Despite inflationary pressures, Hormel has been able to implement pricing actions across its portfolio without seeing significant demand destruction. Consumers have remained willing to pay higher prices for Hormel’s branded, value-added products.

Transformation to Branded, Value-Added Business

Hormel is continuing to shift its portfolio away from commodity businesses towards branded, value-added products. This includes actions at Jennie-O Turkey Store to optimize the turkey portfolio and reduce volatility.

Planters Integration and Potential

The Planters acquisition is performing at the high end of expectations and Hormel sees significant opportunities to grow and innovate with the brand, especially in snacking and convenience channels.

Supply Chain Optimization

Hormel is investing in automation, capacity expansions, and supply chain initiatives like the new pork supply agreement to improve efficiency, flexibility and reduce earnings volatility.

Cautious Optimism on Costs

While input costs remain elevated, Hormel expects some relief in key commodities like pork and turkey. However, the company remains wary of ongoing volatility in freight, labor and other costs.

Confident 2022 Outlook

Hormel is guiding to sales and earnings growth above its long-term targets, driven by organic growth across segments and the contribution from Planters. The company sees opportunities to continue expanding margins.

Overall, the key insights point to Hormel’s ability to navigate a challenging operating environment, continue its strategic transformation, and leverage its brand portfolio and supply chain capabilities to drive sustainable long-term growth.

Earnings Call Analysis 2021 Q4

Pricing Power and Brand Strength

Hormel has been able to take broad-based, aggressive pricing actions across its portfolio to offset significant inflationary pressures on inputs like pork, freight, labor, and other costs. The strength of its leading brands has allowed it to implement these price increases without major impact on demand.

Operational Challenges

The company is facing significant industry-wide operational challenges due to labor shortages, impacting its ability to fully meet customer demand. Hormel is taking actions like automation, portfolio simplification, and hiring/retention efforts to address these challenges.

Diversified Business Model

Hormel’s balanced portfolio across raw materials, channels, and categories has allowed it to perform well despite the difficult operating environment. The company remains optimistic about its long-term growth prospects.

Strategic Investments

Hormel continued to make strategic investments during the pandemic, including capacity expansions, automation, e-commerce, and the Planters acquisition. These investments position the company for future growth.

Planters Integration

The integration of the Planters business has been smooth so far, and Hormel remains confident in the long-term accretive impact of this acquisition, despite some near-term one-time costs.

Margin Recovery

While margins faced pressure in Q3 due to inflation, Hormel expects margins to improve sequentially as pricing actions continue to take effect in the coming quarters.

Overall, the call highlights Hormel’s ability to navigate a challenging operating environment through its pricing power, brand strength, diversified business model, and strategic investments – key attributes that should appeal to long-term investors.

Earnings Call Analysis 2021 Q3

Diversified and Balanced Business Model

Hormel’s diversified business model across grocery, foodservice, and international segments has proven to be a strength, allowing the company to perform well in different economic conditions.

Foodservice Recovery

The foodservice business has seen a strong recovery, with sales up 28% in the quarter and exceeding pre-pandemic 2019 levels. This reflects Hormel’s ability to support its distributor and operator partners during the pandemic.

Pricing Power and Inflation Management

Hormel has been proactive in taking pricing actions across its portfolio to offset rapid increases in raw material and feed costs. The company expects pricing to catch up with inflation in the coming quarters.

Supply Chain Optimization

Hormel’s investments in its “One Supply Chain” initiative have improved efficiencies and reduced costs, helping the company navigate pandemic-related disruptions.

International Growth

The international segment, particularly in China, has seen impressive growth, driven by strong performance in retail and foodservice channels for brands like SPAM and SKIPPY.

Jennie-O Challenges

The Jennie-O Turkey Store segment has faced headwinds from higher feed costs, though the company has taken actions to hedge grain costs and expects a recovery in turkey markets.

Acquisition of Planters

The pending acquisition of the Planters snack nut business is seen as a positive, providing additional growth opportunities for Hormel.

Overall, the key insights suggest Hormel’s diversified business model, pricing power, supply chain optimization, and international growth prospects make it well-positioned for long-term success, despite near-term inflationary pressures.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.