QUOTE AND NEWS
Market Intelligence Center  Jul 2  Comment 
The patented option trade-picking algorithms behind MarketIntelligenceCenter.com's Artificial Intelligence Center have selected a covered call trade on Hormel Foods Corp (HRL) that includes 6.32% downside protection. Sell one contract of the Dec....
Benzinga  Jun 17  Comment 
Hormel Foods Corporation (NYSE: HRL) today announced as a result of its definitive agreement to acquire Applegate Farms, LLC, Steven J. Lykken and Eldon O. Quam will assume leadership roles with Applegate, based in Bridgewater, New Jersey. These...
Market Intelligence Center  Jun 11  Comment 
Option-trade picking algorithms patented by MarketIntelligenceCenter.com found a trading opportunity with Hormel Foods Corp (HRL) that should provide a 2.38% return in just 99 days. Sell one Sep. '15 call at the $55.00 level for each 100 shares of...
Motley Fool  Jun 9  Comment 
Hormel is making the biggest deal in its history to get a foothold in a high-growth industry. Here's why this should pay off.
Market Intelligence Center  May 29  Comment 
Option-trade picking algorithms patented by MarketIntelligenceCenter.com found a trading opportunity with Hormel Foods Corp (HRL) that should provide a 2.80% return in just 203 days. Sell one Dec. '15 call at the $55.00 level for each 100 shares...
TheStreet.com  May 29  Comment 
NEW YORK (Real Money) -- If Hormel  is taking the plunge, they all have to take the plunge. I am talking about old-line food companies and their needs to go more natural and organic. Hormel's a very smart company run by a terrific operator,...
TheStreet.com  May 28  Comment 
Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener. NEW YORK (TheStreet) -- Did you miss last night's "Mad Money" on CNBC? If so, here are Jim Cramer's top takeaways for today's trading. HRL...
Benzinga  May 27  Comment 
Shares of food processing stocks were in play Wednesday following a report that Hormel Foods Corp (NYSE: HRL) will buy natural and organic meat processor Applegate Farms LLC for approximately $775 million. In a press release, Hormel CEO...




 

The company's financial results and margins are tied closely to the cost and supply of pork, poultry, and feedstuff commodities prices like grain, which are the principal costs in raising livestock; corn prices in particular have risen since 2007 as ethanol producers have increased demand for the grain. The company generally enters into long-term hedging arrangements with suppliers, but major fluctuations in price or supply disruptions can adversely impact results. In the longer term, consumption in increasingly wealthy countries such as China may be particularly attractive to Hormel given its strong portfolio of branded meat products.

Company Overview

Business Financials

In 2009, HRL earned a total of $6.53 billion in total revenues. This was a decline from its 2008 total revenues of $6.75 billion. Despite this decrease in total revenues, HRL's net income increased. Between 2008 and 2009, HRL's net income increased from $286 million in 2008 to $343 million in 2009.[1]

Key Trends, Risks and Forces

Supply and price of inputs (live pork and poultry)

Hormel is heavily dependent upon favorable pricing and availability of live hogs and poultry in making its foods, as well as the commodity inputs that are required to feed the animals (Grains Prices, corn, etc). Major increases in price or major shocks to or shifts in supply could increase costs and deteriorate margins. Hormel believes its long-term hedging contracts to “lock in” current prices, as well as its ability to partially pass on costs to consumers through price increases, are sufficient to mitigate risk. However, the “spot” hog market (i.e. buying hogs without a long-term contract) is steadily on the decline, and it is possible that underutilized slaughterhouses lead to increases in Hormel’s raw materials. Also, grain prices have been rising and can be volatile, further increasing the volatility and potential contraction of margins.

Ability to brand and market value-added meat products

About 80% of packaged meat products are branded, as the companies that sell them attempt to differentiate their product and leverage pricing power by staying "top of mind" in the grocery store (also see Private Label Trends). Hormel's brands are vitally important to the company's margins and ability to sell larger volumes than its undifferentiated competitors. The quality of the company's products and strength of the Hormel name vis-a-vis similarly successful meat brands (e.g., Tyson Foods (TSN)) is a key determinant of success going further. Furthermore, the ability of Hormel to develop the same brand strength in increasingly wealthy international markets like China, will be crucial in determining success going forward. As a result, HRL does not need to rely upon private labels to sell its volume of goods- it is able to sell its products as branded items, thereby ensuring relatively comfortable margins.

Growth abroad

While the company's domestic market (U.S.) are fairly mature, other markets, including China, represent attractive prospects for more organic growth. The company particularly notes that its Chinese operations have been reporting strong top and bottom line growth, and management recognizes China as a key area for Hormel's growth. As China becomes more economically mature and consumers begin to value Hormel’s brands, the company can benefit from strong growth in this rapidly expanding market and is pursuing initiatives to grow its business there. Whether HRL successfully competes against China's domestic brands as well as international competitors remains to be seen.

Disease outbreaks

The company is subject to the possibility of animal disease outbreaks that might threaten sales, hamper margins, or lead to reputational damage if humans were ever to become infected. Furthermore, government intervention or restrictions following an outbreak could lead to adverse results.

Competition

Hormel competes largely with similarly positioned large providers of packaged meat products that one might typically find on any grocery store shelf. These include Tyson Foods (TSN), Smithfield Foods (SFD), Pilgrim's Pride (PGPDQ), and Sanderson Farms (SAFM).

Footnotes

  1. HRL 10-K 2009 Item 6 Pg. 12
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