Hormel Retains Neutral Rec - Analyst Blog
March 14 2012 - 11:34AM
Zacks
We maintain a Neutral view on Hormel Foods
Corporation (HRL).
Hormel’s retail penetration into branded meat products, enhanced
portfolio of value-added grocery items and its strategic pricing
actionshave over time been providing impetus to the company’s
sales. This paints an encouraging picture positioning Hormel as
brand name within the industry.
The company’s gains from the International segment, positive
export environment and marketing schemes look impressive. We hope
to see enhanced operational efficiencies which, we believe, will
improve the company’s profitability later in the year.
With the net sales upside recorded in the first quarter of 2012,
management continues to look for slowly improving results from its
Refrigerated Foods segment as pork operating margins return to more
normalized levels. Sales in the Grocery Products segment and Meat
Products group are also anticipated to improve in the coming
quarters, effectively with the company’s new advertising campaigns
supporting HORMEL and SPAM brands.
Marked by the gradual improvement in the foodservice industry,
the company expects Foodservice Group and Specialty Foods to build
upon their solid start and hold up the prospects for better future
ahead.
To strengthen its growth profile, Hormel maintains a favorable
cash position and is financially well poised to pursue further
acquisitions/integrationsin the near future.
However, Hormel’s strategy to grow through acquisitions imposes
several potential risks for the company. Its international
operations and acquisitions expose it to fluctuating foreign
exchange rates owing to the appreciation of a foreign currency
against the US dollar. Risks and dilemma associated with foreign
operations like government intervention, political issues,
regulatory delays, etc. may not be overlooked.
Worthy of mention, the company’s operations are not free from
risks. The production and sale of meat and food products is highly
competitive. The company faces stiff competition from the
manufacturers of pork and turkey products, national and regional
producers of other meat and protein sources as well as from
low-cost regional manufacturers of processed food.
Therefore, in order to survive the competition without having to
compromise on quality, Hormel necessarily incurs a higher cost of
manufacturing for value-added, differentiated products.
Over time, the raw material cost for the company has climbed
steadily. Adding to the risk is the rise in cold storage charges
and supply uncertainty of pork, poultry and feed grains. This, we
anticipate, may compress sales and squeeze operating profits in the
coming quarters. Moreover, the company has been facing an
oscillating demand scenario for its products due to constantly
changing market forces. This may hamper profitability going
forward.
Even under such pressures, hope remains as we observe the
company’s commitment toward returning value to its shareholders and
dedication to a fair allocation of its resources.
Based in Austin, Minnesota, Hormel Foods Corporation is a
leading manufacturer and marketer of various meat and food products
in the United States and internationally. The company faces stiff
competition from ConAgra Foods Inc. (CAG),
Kraft Foods Inc. (KFT) and Tyson Foods
Inc. (TSN).
Hormel has a Zacks #3 Rank, which translates into a short-term
Hold rating (1-3 months).
CONAGRA FOODS (CAG): Free Stock Analysis Report
HORMEL FOODS CP (HRL): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
TYSON FOODS A (TSN): Free Stock Analysis Report
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