Back to top

Image: Bigstock

Hormel Foods' (HRL) Refrigerated Foods Unit Solid, Costs High

Read MoreHide Full Article

Hormel Foods Corporation (HRL - Free Report) is benefiting from strength in the Refrigerated Foods segment. The company’s consistent focus on enhancing capacity and undertaking innovative product launches bodes well. Moreover, the company has undertaken acquisitions to strengthen its brand portfolio. However, the Grocery and International units remained under pressure in fourth-quarter fiscal 2019. Moreover, it continues to witness increase in input costs. Let’s take a closer look.

What’s Aiding Hormel Foods?

Hormel Foods’ Refrigerated Foods category is growing steadily on the back of strong brand portfolio and effective strategies. During fourth-quarter fiscal 2019, the segment’s sales rose roughly 4% year over year. The upside can be attributed to products like Hormel Bacon 1 and Hormel Fire Braised as well as retail sales of Hormel Black Label, Hormel Natural Choice, Applegate and Hormel Gatherings. Value-added growth, effective pricing and innovation are likely to continue driving the segment’s performance, going ahead.

In fact, the Columbus and Fontanini buyouts have been driving performance in the Refrigerated Foods segment. With the inclusion of Columbus, the company has been able to develop the new Hormel deli solutions division. This is included within the Refrigerated Foods unit and has been helping the company meet retailer needs. Also, the Ceratti acquisition is boosting the International segment’s performance. These buyouts are expected to continue boosting performance in the forthcoming periods.

Apart from this, Hormel Foods’ expansion efforts are commendable. In its last earnings call, management announced plans to construct state-of-the-art dry sausage production facility for its Columbus charcuterie products. The plant, which is anticipated to be operational in early fiscal 2021, will help Hormel Foods expand Columbus products distribution to the East Coast. Also, the company is progressing well with the expansion of its Burke pizza toppings plant, which is expected to commence production in the latter half of fiscal 2020.

Further, Hormel Foods is committed toward making strategic advertisement investments to support growth of its brands. Additionally, the company focuses on launching products to meet consumers’ preferences. Notably, sales from product innovations have increased nearly 15% in the past five years. Management expects innovations and e-commerce to drive sales growth in fiscal 2020.

On the back of these upsides, shares of the Zacks Rank #3 (Hold) company have increased 13.1% in the past six months compared with the industry’s growth of 10.3%.

Hurdles in Hormel Foods’ Path

All said, Hormel Foods’ Grocery & International units were in a tight spot in fiscal fourth quarter. International & Other revenues declined 12.3%. Nevertheless, volumes decreased 14%. Results were affected by softness in branded and fresh exports. Further, sales in the Grocery Products unit declined about 10% and volumes fell 9% due to the divestiture of CytoSport. Also, persistent weakness at Skippy due to completion in the peanut butter category hurt organic sales to an extent.

Apart from this, the pork market was under pressure in fiscal fourth quarter due to African swine fever. Also, Hormel Foods continues to battle input cost inflation that is likely to persist in fiscal 2020.To top it all, management expects protein prices to increase in fiscal 2020 that are expected to affect profits.

Though Hormel Foods is undertaking various initiatives to lift performance, it is yet to be seen how effective they are in countering the aforementioned challenges.

Other Top Picks

Helen of Troy Limited (HELE - Free Report) , which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Estee Lauder Companies Inc. (EL - Free Report) , which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 12.8%.

Procter & Gamble Company (PG - Free Report) , which carries a Zacks Rank #2, has a long-term earnings growth rate of 7.5%.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>