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Hormel Foods Fights Pork Industry Woes, Sells Fremont Facility

Hormel Foods Corporation HRL concluded the divestiture of its Fremont processing facility to Wholestone Farms, LLC. The deal, which was announced in August, was worth $30 million, conditional on certain inventory and administrative adjustments.

The deal includes a processing facility along with a multiyear contract between the two entities to supply pork inputs to Hormel Foods. Further, Hormel Foods’ management earlier stated that the Fremont facility will continue to serve as a vital part of its supply-chain structure. Incidentally, Hormel Foods is committed toward strengthening its supply-chain network, with focus on all areas right from procurement to shipment. This is likely to result in efficient optimization.

Clearly, Fremont facility’s sale to Wholestone Farms reflects Hormel Foods’ strategy to keep pace with the evolving pork industry dynamics. Well, an unstable tariff environment has made things tough for Hormel Foods. Evidently, higher tariffs in core markets weighed on fresh pork export volumes, sales and profits at Hormel Foods’ International division during the fourth and third quarters of fiscal 2018. Also, lower pork market weighed on pricing in the Refrigerated Foods segment.

The company expects global trade uncertainties to remain a hurdle for fresh pork exports. Management also highlighted that domestic pork prices have declined due to abundant supply of other meat products.  Additionally, commodity market volatility is a persistent headwind for the company. This weighed on the company’s organic volumes and sales during the fourth quarter. Commodity market conditions have been impaired mainly due to lower harvest levels and industry margins.

Nonetheless, strong demand for popular brands like Hormel Black Label bacon, SPAM, Muscle Milk and Wholly Guacamole dips are expected to continue driving the company’s revenues. In fact, gains from popular brands drove performance in the Refrigerated Foods and International categories during the fourth quarter of fiscal 2018. The company is focusing on effective advertising and innovations to further bolster brand strength. Additionally, it engages in strategic buyouts to boost portfolio. In this respect, the buyouts of Columbus, Fontanini and Ceratti businesses have been yielding.

Such upsides along with Hormel Foods’ focus on supply-chain optimization are likely to continue boosting investors’ confidence in this Zacks Rank #3 (Hold) stock that has rallied 27% in the past six months compared with the industry’s growth of 2.2%  

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