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Category: Stock Market and Hormel Foods
Date: 21 February 2020 Stock Price: $45.53 We take a look at the 1st quarter 2020 earnings report of Hormel Foods Corporation, the owner of various branded food products such as Skippy,Spam and Black Label
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About Hormel Foods Corporation
Hormel Foods Corporation, based in Austin, Minn., is a leading global branded food company with over $9 billion in annual revenues across more than 80 countries worldwide. Its brands include Skippy®, SPAM®, Hormel® Natural Choice®, Columbus®, Applegate®, Justin's®, Wholly®, Hormel® Black Label® and more than 30 other beloved brands. The company is a member of the S&P 500 Index and the S&P 500 Dividend Aristocrats. In 2016, the company celebrated its 125th anniversary and announced its new vision for the future – Inspired People. Inspired Food.™ - focusing on its legacy of innovation.
Overview of Hormel Foods' 1st quarter 2020 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Net sales: $2.384 billion (up from $2.360 billion for the same quarter in the previous year)
- Net sales increased by 1% over the last 12 months
- Cost of products sold: $1.916 billion (up from $1.872 billion for the same quarter in the previous year)
- Cost of products sold increased by 2.35% over the last 12 months
- A bit of margin squeeze being experienced by Hormel Foods as revenue increased but at a rate slower than the cost of products sold
- Net earnings: $242.953 million (up from $241.425 million for the same quarter in the previous year)
- Diluted earnings per share: $0.45 (up from $0.44 for the same quarter in the previous year)
- PE ratio of Hormel Foods: 25.3
- Diluted number of shares in issue: 544.815 million (down from 547.118 million for the same quarter of the previous year)
- Dividend per share for the quarter: $0.2325
- Dividend yield of Hormel Foods: 2%
- Cash and equivalents: $724.419 million
- Cash and equivalents per share: $1.32
- Cash and equivalents makes up 2.9% of Hormel's current market capital
- Cash and equivalents makes up 8.7% of Hormel's total assets
- Inventories: $1.057 billion
- Inventories makes up 12.8% of Hormel's total assets
- Hormel Foods inventories increased by 1.4% over the last 12 months
- Cash generated from operations :: $188.418 million
- Cash generated from operations per share : $0.35
Hormel Food Corporation management commentary on their latest earnings and guidance
AUSTIN, Minn., Feb. 20, 2020 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the first quarter of fiscal 2020. All comparisons are to the first quarter of fiscal 2019 unless otherwise noted. The impact of the CytoSport divestiture is excluded in the presentation of the non-GAAP measures below.
"Organic sales growth met our expectations this quarter as three of our four segments delivered volume and sales growth," said Jim Snee, chairman of the board, president and chief executive officer. "It is encouraging to see Jennie-O Turkey Store deliver a second consecutive quarter of volume, sales and profit growth while continuing to gain back Jennie-O® lean ground turkey distribution. We are also seeing the strategic capital and marketing investments lead to strong growth from brands such as SPAM®, Hormel® Black Label®, Fontanini®, Hormel® Bacon 1TM and Hormel® Fire BraisedTM."
"The Refrigerated Foods business model performed as anticipated, given the volatile commodity market conditions. Growth was driven by another strong quarter from our foodservice team and higher commodity profits," Snee said. "Volatile pork and beef trim prices also impacted profitability across many product lines in Grocery Products."
"Organic sales growth met our expectations this quarter as three of our four segments delivered volume and sales growth," said Jim Snee, chairman of the board, president and chief executive officer. "It is encouraging to see Jennie-O Turkey Store deliver a second consecutive quarter of volume, sales and profit growth while continuing to gain back Jennie-O® lean ground turkey distribution. We are also seeing the strategic capital and marketing investments lead to strong growth from brands such as SPAM®, Hormel® Black Label®, Fontanini®, Hormel® Bacon 1TM and Hormel® Fire BraisedTM."
"The Refrigerated Foods business model performed as anticipated, given the volatile commodity market conditions. Growth was driven by another strong quarter from our foodservice team and higher commodity profits," Snee said. "Volatile pork and beef trim prices also impacted profitability across many product lines in Grocery Products."
STRATEGIC INVESTMENT
"This morning we separately announced an agreement to acquire Sadler's Smokehouse, an authentic pit-smoked meats company based in Henderson, Texas. The company has been one of our trusted suppliers for over two decades, and we have been fortunate to build a relationship with the Sadler family," Snee said. "Authentic barbeque is on trend and continues to show excellent growth on restaurant menus across the nation. This acquisition perfectly aligns with our strategic initiative of strengthening our position in foodservice and gives us another highly differentiated branded product line, similar to what we have with Burke pizza toppings and Fontanini Italian meats and sausages. We also see a unique opportunity to further extend the Sadler's product line into the retail and deli channels. We are excited to welcome the Sadler's Smokehouse team members to the Hormel Foods family and look forward to their contributions."
FISCAL 2020 OUTLOOK
"We are reaffirming our fiscal 2020 sales and earnings guidance," Snee said. "We have strong fundamentals in Refrigerated Foods and clear momentum at Jennie-O Turkey Store. We expect both segments to contribute meaningfully to our growth this year. While many Grocery Products brands, such as SPAM®, Wholly® and Herdez®, are performing well, we have additional work to do on the SKIPPY® spreads and Hormel® chili businesses. Our International team continues to manage through African swine fever, tariffs and the uncertainty caused by the recent outbreak of coronavirus in China. We have started to see a negative impact on our business in China from the coronavirus outbreak, but we are not yet able to forecast the impact for the remainder of the year. For the full year, we expect the International results to be offset by strong performances from Refrigerated Foods and Jennie-O Turkey Store."
Fiscal 2020 Outlook
Net Sales Guidance (in billions)
$9.50 - $10.30
Earnings Per Share Guidance
$1.69 - $1.83
"This morning we separately announced an agreement to acquire Sadler's Smokehouse, an authentic pit-smoked meats company based in Henderson, Texas. The company has been one of our trusted suppliers for over two decades, and we have been fortunate to build a relationship with the Sadler family," Snee said. "Authentic barbeque is on trend and continues to show excellent growth on restaurant menus across the nation. This acquisition perfectly aligns with our strategic initiative of strengthening our position in foodservice and gives us another highly differentiated branded product line, similar to what we have with Burke pizza toppings and Fontanini Italian meats and sausages. We also see a unique opportunity to further extend the Sadler's product line into the retail and deli channels. We are excited to welcome the Sadler's Smokehouse team members to the Hormel Foods family and look forward to their contributions."
FISCAL 2020 OUTLOOK
"We are reaffirming our fiscal 2020 sales and earnings guidance," Snee said. "We have strong fundamentals in Refrigerated Foods and clear momentum at Jennie-O Turkey Store. We expect both segments to contribute meaningfully to our growth this year. While many Grocery Products brands, such as SPAM®, Wholly® and Herdez®, are performing well, we have additional work to do on the SKIPPY® spreads and Hormel® chili businesses. Our International team continues to manage through African swine fever, tariffs and the uncertainty caused by the recent outbreak of coronavirus in China. We have started to see a negative impact on our business in China from the coronavirus outbreak, but we are not yet able to forecast the impact for the remainder of the year. For the full year, we expect the International results to be offset by strong performances from Refrigerated Foods and Jennie-O Turkey Store."
Fiscal 2020 Outlook
Net Sales Guidance (in billions)
$9.50 - $10.30
Earnings Per Share Guidance
$1.69 - $1.83
Hormel Food Corporation (NYSE:HRL) stock price history
The image below, obtained from Google shows the stock price history of Hormel Foods (NYSE:HRL) for the last 5 years. And its been a pretty good time for Hormel stockholders. 5 years ago the stock of Hormel was trading at $29.30 and its currently trading at $45.53. That's a return of 55.4% provided to Hormel stockholders over the last 5 years.
The stock of Hormel is trading at a lot closer to its 52 week high of $48.86 than it is to its 52 week low of $37 which to us is a clear indication that the short term sentiment and momentum of Hormel Food stock is positive.
The stock of Hormel is trading at a lot closer to its 52 week high of $48.86 than it is to its 52 week low of $37 which to us is a clear indication that the short term sentiment and momentum of Hormel Food stock is positive.
Recent coverage of Hormel Foods Corporation
The extract below covers the latest regarding Hormel Foods as obtained from seekingalpha.com
Stock Analysis: Hormel Foods Corporation
In my opinion, Hormel Foods Corporation (HRL) is a company with a very secure business model with consistent cash flows, a superior market position and steadily increasing profits. Especially outstanding is the consistent dividend history with high growth rates. However, I see the low organic growth and the high number of acquisitions as problematic.
Cycle and business model
HRL operates in the consumer staples sector and therefore has a not very cyclical business model. This segment is characterized by relatively low operating growth, but operating cash flow and net income are stable and not subject to major fluctuations. For this reason, even in times of crisis, there have only been small periods of declining growth rates. At the same time, HRL strives to further reduce its dependence on fluctuations and to reduce the risks. For this reason, important resources, such as pork, are hedged with the help of long-term contracts to secure the price over a longer period. Finally, HRL tries to concentrate on products with year-round demand in order to avoid seasonal fluctuations. Overall, HRL is a very stable, non-cyclical and crisis-proof business model.
Read the full article here
- HRL is a dividend aristocrat with 53 years of dividend increases in succession.
- Low organic growth and dependence on acquisitions to achieve growth targets.
- Market leadership and strong brands, but still tough competition.
- Very solid financial situation.
- There is an overvaluation at the current price.
Stock Analysis: Hormel Foods Corporation
In my opinion, Hormel Foods Corporation (HRL) is a company with a very secure business model with consistent cash flows, a superior market position and steadily increasing profits. Especially outstanding is the consistent dividend history with high growth rates. However, I see the low organic growth and the high number of acquisitions as problematic.
Cycle and business model
HRL operates in the consumer staples sector and therefore has a not very cyclical business model. This segment is characterized by relatively low operating growth, but operating cash flow and net income are stable and not subject to major fluctuations. For this reason, even in times of crisis, there have only been small periods of declining growth rates. At the same time, HRL strives to further reduce its dependence on fluctuations and to reduce the risks. For this reason, important resources, such as pork, are hedged with the help of long-term contracts to secure the price over a longer period. Finally, HRL tries to concentrate on products with year-round demand in order to avoid seasonal fluctuations. Overall, HRL is a very stable, non-cyclical and crisis-proof business model.
Read the full article here
Hormel Foods Corporation (NYSE:HRL) stock valuation
So based on Hormel Foods latest earnings report ad their fiscal guidance what do we value the stock of Hormel at? Based on their earnings report and guidance provided our valuation model provides a target (full value price) for Hormel Foods at $33.70 a stock (down a bit from our 3rd quarter 2019 earnings report valuation). We therefore believe the stock of Hormel is overvalued
We recommend that long term fundamental and value investors look to enter a stock at least 10% below our target (full value) price which in this case is $33.70. A good entry point into Hormel Food stock would therefore be at $30.30 or below.
We expect the stock of Hormel Foods to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
We recommend that long term fundamental and value investors look to enter a stock at least 10% below our target (full value) price which in this case is $33.70. A good entry point into Hormel Food stock would therefore be at $30.30 or below.
We expect the stock of Hormel Foods to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
Next earnings release of Hormel Foods
It is expected that Hormel Foods will release their 2nd quarter 2020 earnings report towards the end of May 2020