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Hormel Foods Boasts Strong Brands, High Tariffs a Worry

Zacks Equity Research

A volatile tariff environment as well as softness in the Turkey market have made matters sour for Hormel Foods Corporation HRL. Nevertheless, this Food - Meat Products industry player is striving to stay afloat on the back of brand growth initiatives, which is also bolstering some of the segments. Let’s take a closer look.

Focus on Strengthening Brands Bodes Well

Strategic buyouts are one of the key catalysts bolstering the company’s brand portfolio. To this end, the Columbus and Fontanini buyouts are aiding the performance in the Refrigerated Foods segment. Notably, through the inclusion of Columbus, the company is able to develop the new Hormel deli solutions division, included within refrigerated foods, along with helping meet retailer needs. Also, the Ceratti acquisition is driving growth in the International segment. These buyouts are expected to continue boosting performance in the forthcoming periods.

Further, strong demand for popular brands like Applegate, Natural Choice, SPAM, Muscle Milk and Wholly Guacamole dips are expected to drive revenues. 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.

Markedly, a strong brand position is aiding growth in the Refrigerated Foods and International categories. During first-quarter fiscal 2019, revenues in the Refrigerated Foods rose nearly 1.9% and the same in the International segment moved up roughly 2.1%. Improved results from the China business also aided international unit’s performance in the said quarter.

Hormel Foods Corporation Price and Consensus


Hormel Foods Corporation Price and Consensus | Hormel Foods Corporation Quote


Factors Hampering Growth

An unstable tariff environment has made things tough for Hormel Foods. Evidently, higher tariffs are weighing on fresh pork export volumes as well as sales and profits in the International division for a while. In fact, we note that management’s expectations regarding the dynamics of the pork industry in the long run led the company to sell the Fremont processing facility to WholeStone Farms in December 2018. Going ahead, the company expects global trade uncertainties to remain a hurdle for fresh pork exports.

Additionally, Turkey market challenges are troubling Hormel Foods’ Jennie-O Turkey Store segment. Further, the company expects Jennie-O Turkey Store to stay dismal in fiscal 2019, thanks to lower retail sales expectation. Such headwinds have caused shares of the company to decline nearly 3.4% in the past three months compared with the S&P 500’s rise of nearly 4%.

Nevertheless, we expect Hormel Foods’ strong brands, rising demand for meat and effective strategies to provide some cushion from the aforementioned hurdles. Such upsides are also likely to boost investors’ sentiments on the Zacks Rank #3 (Hold) stock in the forthcoming periods.

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