I can't find anything that Hormel Foods makes that I don't like to eat. This company has been around for 123 years feeding all of us with great tasting food at home, work and in restaurants everywhere.
Now, as this company is expanding internationally into markets demanding great tasting food that's healthy and safe to eat, I expect the future of this company is also healthy and safe to own. I'm really not sure why I don't already have a position in this stock but I intend to remedy that fact very, very soon.
- Sales and profits in 4 out of the 5 company segments are significantly increasing sales and profits and are expected to continue to increase these going forward.
- Costs are increasing as the price of raw meat increases and supplies diminish.
- Management has been able to increase prices as costs increase, so far.
- Chinese and Asian sales and profits are increasing at a very rapid rate as the company expand internationally.
- The recent drop in the price of the stock is creating an opportunity to own this company at a fair price.
Hormel Foods Corporation (HRL) processes, markets, and sells consumer-branded meat and food products. The company operates in five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other. The Grocery Products segment offers shelf-stable food products, including canned luncheon meats, shelf-stable microwaveable meals, stews, chilies, hash, meat spreads, flour and corn tortillas, salsas, and tortilla chips in the retail market. The Refrigerated Foods segment provides branded and unbranded pork and beef products for retail, foodservice, and fresh product customers. The Jennie-O Turkey Store segment offers branded and unbranded turkey products for retail, foodservice, and fresh product customers. The Specialty Foods segment is involved in the packaging and sale of various sugar and sugar substitute products, salt and pepper products, liquid portion products, dessert mixes, ready-to-drink products, sports nutrition products, gelatin products, and private label canned meats to retail and foodservice customers. This segment also processes, markets, and sells nutritional food products and supplements to hospitals, nursing homes, and other marketers of nutritional products. The International and Other segment manufactures, markets, and sells its products internationally. Hormel Foods Corporation sells its products through sales personnel, as well as through independent brokers and distributors primarily in the United States, Australia, Canada, China, England, Japan, Mexico, Micronesia, the Philippines, and South Korea. The company was formerly known as George A. Hormel & Company and changed its name to Hormel Foods Corporation in January 1995. Hormel Foods Corporation was founded in 1891 and is based in Austin, Minnesota. (Daily Chart) (Weekly Chart)
25 May 2014
1yr Target $50.83
1yr Cap Gain 8.94%
1yr Tot Return 10.65%
3yr DGR 17.23%
5yr DGR 12.94%
Payout Ratio 34.87%
EPS (ttm) $2.03
EPS next yr $2.55
- The Grocery Products segment profit increased by 16% and was the result in increases in sales of SKIPPY peanut butter, Hormel bacon toppings and the HERDEZ line of products.
- Sales for Refrigerated Foods increased 10%, led by retail sales of Hormel Black Label bacon, Hormel REV Snack Wraps and Hormel Country Crock side dishes. Operating profit for this segment was up 38%.
- Sales growth in the Foodservice businesses, including such items as the Hormel FIRE BRAISED Meats, Old Smokehouse Pecanwood Smoked Bacon, and Natural Choice deli meats also improved. Profit at the Jennie-O Turkey Store also increased but at only 2%.
- The Specialty Foods segment reported an operating profit decrease of 26% and a sales decrease of 12%, largely driven by the expiration of the agreement in July of 2013 allowing Diamond Crystal Brands to sell certain sugar substitutes into foodservice trade channels.
- The International & Other segment turned in a strong quarter with profit increasing 34% while sales grew 23%. This increase is the result of the first full quarter that included SKIPPY peanut butter operations in China. Strong export sales of SKIPPY peanut butter and fresh pork along with the growth in the China operations drove these positive results.
Going forward, increased costs due to elevated beef, pork, turkey, and avocado will continue to squeeze margins on many of Hormel's value-added product lines. In addition, an anticipated pork supply shortage later in the third quarter of this year will impact food sales to some extent. Finally, I expect the ongoing and significant growth of sales and profits in the international segment of the business to continue for many years to come as Hormel expands further into mainland China and all across Asia.
Hormel Foods has also maintained a steady payout ratio ranging from a low of 26.82% to a high of 34.78%. Payout ratios at this level allow for companies like Hormel Foods to continue to increase their dividends for many years into the future with very little difficulty at a rate comparable to the rate of their earnings increases. Based on the current dividend payment of $0.20 per quarter and the estimated 2014 earnings projection of $2.21, it appears that the company is going to allow the payout ratio to rise once again to 36.19% this year. Continuing this trend I expect dividends to increase to $0.92 in 2015.
Growth rates for revenues and earnings (see below) have been relatively consistent over the past 3 year, 5 year and 10 year periods. The growth rate for its dividend has increased recently from the 12% level to the 17% level as management has allowed the payout ratio to increase. Personally I don't see this rate of growth continuing for too many quarters or years into the future. Instead I see the dividend growth leveling off as the payout ratio approached 50% and management tends to slow the growth rate. At that point (or sooner), the dividend growth rate should reflect the rate of growth in earnings, which is still at a very respectable 10-13% rate.
The weekly chart, on the other hand, is better at discovering the longer term trend of the stock price. In Hormel Foods' weekly chart below, the overall trend is evident even to a blind person. This company is on a roll and has been for a very long time. Without knowing any of the fundamentals of the company, just looking at the chart it's obvious to investors that this company is likely to continue in an upwardly direction for some time to come. (Fortunately the fundamentals are saying the same thing!)
From a technical point of view, this stock chart looks strong, consistent, and powerful long term.
I intend to start a position in this stock this week and continue to add to that position each time the stock bounces off its 10 week moving average. I think this will be one of those companies that I will be holding for decades into the future.
Good Luck and Good Trading.