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Hormel Foods' (HRL) Planters Snacking Business Buyout to Aid Growth

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Hormel Foods Corporation (HRL - Free Report) has been focused on strengthening its business on the back of strategic acquisitions. Keeping along these lines, the company concluded the previously-announced acquisition of the Planters snacking portfolio from The Kraft Heinz Company (KHC - Free Report) . We note that, the transaction was priced at $3.35 billion on a cash basis. The buyout includes the Planters, NUT-rition, Planters Cheez Balls and Corn Nuts brands along with three manufacturing units.

In a press release dated Feb 11, 2021, Hormel Foods highlighted that the Planters snack nut portfolio generated net sales of nearly $1 billion in 2020. Further, the company notified that it expects to grow the metric to its long-term organic growth target. Also, operating margins are likely to be accretive to the Grocery Products business in 2022. Further, the buyout is envisioned to enhance Hormel Foods’ margins and cash flows. Moreover, management had stated that it is likely to generate synergies of $50-60 million by 2024.

Certainly, Hormel Foods’ marketing, innovation and robust sales organization are likely to help accelerating the Planters snacking business’ growth. Well, Hormel Foods is keen on enhancing its snacking offerings. To this end, the addition of Planters snacking business to its existing portfolio of leading brands like Hormel Natural Choice, Applegate, SKIPPY, SPAM, Justin's, Columbus and Wholly Guacamole bodes well.

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Capacity Expansion Endeavors

Hormel Foods has been benefiting from its focus on acquisitions, which has been helping it expand presence.In this regard, the company acquired a Texas-based pit-smoked meats company, Sadler's Smokehouse (March 2020). The buyout is in sync with Hormel Foods’ initiatives to strengthen position in the foodservice space. Further, the Columbus (November 2017) and Fontanini (August 2017) buyouts have been aiding performance. Also, the Ceratti acquisition (August 2017) is driving the International segment. These buyouts are expected to continue boosting performance in the forthcoming periods.

Along with prudent acquisitions, Hormel Foods is on track with strategic investments to boost capacity. Notably, the company incurred capital expenditures of $45 million in the second quarter of fiscal 2021. Management stated that it has been making investments in plant-based offerings and is witnessing growth in its plant-based pepperoni as well as crumbles products. The company has seen robust growth in the pizza topping space and is well placed to see further gains, thanks to its new capacity expansion endeavor and its additional pepperoni capacity — which is set to open in fiscal 2022 beginning. Markedly, during the fiscal first quarter, management commenced its Burke pizza toppings plant expansion. Further, Hormel Foods opened its new dry sausage manufacturing unit in Omaha, NE in the same quarter.

Management expects capital expenditures of $260 million for fiscal 2021, which includes major projects like Project Orion and pepperoni capacity expansion in Nebraska among others. These are aimed at supporting growth of branded products.

Notably, shares of this Zacks Rank #3 (Hold) company have gained 5.5% so far this year compared with the industry’s 13.8% growth.

Some Solid Food Bets

Medifast, Inc. (MED - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darling Ingredients Inc. (DAR - Free Report) , currently sporting a Zacks Rank #1, has a trailing four-quarter earnings surprise of 29.8%, on average.

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