Hormel Foods Corporation
HRL Details
Hormel Foods Corporation (NYSE: HRL) is a branded food company present globally with prominent brands comprising Skippy, SPAM, Hormel Natural Choice, Columbus, Applegate, Justin's, Wholly, Hormel Black Label, among others.
Result Performance for the Year Ended 31 October 2021 (FY21)
- The company's net sales stood at $11.4 billion in FY21, up 19% YoY, while the organic net sales increased 14% YoY, driven by a rise in volume by 3% YoY, while the organic volume growth was 1% YoY to 4.9 billion lbs. The growth came in from every segment and channel,
- The operating income stood at $1.1 billion in FY21, up 2% YoY and the operating margin stood at 9.9% in FY21 versus 11.5% in FY20.
- Diluted earnings per share stood at $1.66 in FY21, in line with last year and adjusted diluted earnings per share stood at $1.73 in FY21, up 4% YoY.
Source: Company Reports, Analysis by Kalkine Group
Declared Dividend
- On 9 December 2021, the company released Q4FY21 and FY21, where net sales stood at $3.5 billion in Q4FY21, up 43% YoY.
Outlook
As per the management, the company recognized solid momentum in Q3FY21 and Q4FY21, providing sound confidence for FY22. Reliable performance in the Planters snack nuts business and organic growth in every segment will drive growth in FY22. The complex operating environment continues to persist, but continued strong demand across all businesses, better production throughput and the impact of revised upward pricing will be key drivers to growth in FY22. The guidance is also augmented by the strategic investments, comprising significant capacity expansions for pizza toppings, dry sausage, and bacon.
The company has guided its FY22 earnings per share to stay between $1.87-$2.03 and net sales between $11.7-$12.5 billion, including the Planters snack nuts business, the impact of the Jennie-O Turkey Store transformation initiatives, the new pork raw material supply agreement, and 52 weeks compared to 53 weeks in fiscal 2021.
Key Risks
The company is exposed to the risk of changes in national or global economic conditions that could adversely hurt its business. Further, the company is susceptible to reducing consumer spending and shifts in consumer product preferences.
Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)
Stock Recommendation
The company has delivered a 6-month return of ~2.5%. The stock is trading higher than the average of the 52-week high price of $50.86 and the 52-week low price of $40.48.
The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis). The target price so arrived reflects the potential fall of low double-digit (in % terms). In addition, a slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), as the company is yet to capitalize on recent acquisitions and report acquisition synergy in the financials.
Considering the technical analysis, recent returns, risks associated, and current trading levels, we believe it is prudent to book profits in the stock. Thus, we give a ‘Sell’ recommendation at the closing price of $49.19 per share as of 16th December 2021.
Technical Overview:
Daily Price Chart
Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)
Hormel Foods Corporation (HRL) is a part of Kalkine’s Global Primary Product
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
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