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Hormel Foods (HRL) Gains From Strength in Brands and Segments

Hormel Foods Corporation HRL boasts a strong brand position and is gaining from steady growth in the Refrigerated Foods and International categories. Notably, the stock has gained 8% in the past three months, against the industry’s decline of 3.9%. Let’s discuss some of the factors aiding this Zacks Rank #3 (Hold) company and some of the aspects that are threats.

Strong Brands Boost the Portfolio

Hormel Foods’ portfolio consists of robust brands that are fueling its popularity and boosting growth. Stronger demand for brands like Hormel Black Label bacon, SPAM, Muscle Milk and Wholly Guacamole dips are expected to drive revenues in the upcoming quarters. Moreover, Hormel Foods believes that increasing popularity of other brands like The Natural Choice, Cafe H products and Hormel fire braised meats will drive performance.

The company is also committed toward making strategic advertisement investments to support growth of brands. Additionally, the company focuses on launching products to meet consumers’ preferences aptly.


 

Acquisitions are another lucrative mechanism through which the company has been developing its brand. To this end, the Columbus and Fontanini buyouts have aided performance in the Refrigerated Foods segment during the fourth quarter of fiscal 2018. Also, the Ceratti acquisition boosted growth in the International segment in the said period. These buyouts have been yielding and are expected to continue boosting performance in the forthcoming periods.

Refrigerated & International Segments Aid Growth

The Refrigerated Foods and International categories are steadily growing on the back of a strong brand portfolio and effective strategies. Notably, these segments registered year-on-year growth of 5.7% and 7.3%, respectively, in the fourth quarter of fiscal 2018.  Prior to this, these segments registered respective increases of 10.1% and 11.1% in the third quarter, 13.6% and 22.1% in the second quarter as well as 4.8% and 19.5% in the first quarter, respectively.

Headwinds Yet to be Overcome

Volatile tariff environment for pork is an obstacle for Hormel Foods. Evidently, higher tariffs in core markets weighed on fresh pork export volumes, sales as well as profits at Hormel Foods’ International division during the fourth and the third quarters of fiscal 2018. The company expects global trade uncertainties to be a hurdle for fresh pork exports. Additionally, 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.

Further, soft turkey market challenges and higher freight costs are denting the company’s performance for the past few quarters. In fact, rising freight costs are a hurdle for other food companies, such as Tyson Foods TSN, Conagra Brands CAG and Sanderson Farms SAFM.

Nevertheless, we expect Hormel Foods’ strong brands and rising demand for meat to provide some cushion from the aforementioned hurdles.

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