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Hormel CEO Jim Snee spoke with Yahoo Finance's Brian Sozzi to discuss Hormel's recent purchase of Planters Peanuts from Kraft Heinz as well as what the future of the food industry looks like after the COVID-19 pandemic.
BRIAN SOZZI: All right, so, Jim, you just made your largest acquisition in the history of Hormel spending, well, at $3.35 billion to buy Planters from Kraft Heinz. Why did you make this deal?
JIM SNEE: Well, Brian, this is an incredibly exciting day for us here at Hormel Foods. As you mentioned, it's by far the largest acquisition we have ever made. And we made the deal because it checks so many boxes for us. And you think about the fact that this is a billion dollar number one brand, a clear market leader. That's the first thing.
Second thing is that market leader is in a space that's so attractive. Right? This further penetrates the snacking space for us, and we've already got a very well-developed snacking portfolio, whether it's Hormel Gatherings Party Trays, Wholly Guacamole, Herdez Salsa. But this is just another entry for us in that snacking space.
The third thing that it does is it further diversifies our portfolio. I mean, with the addition of Planters, 25% of our portfolio will now be non-meat. And so we love the meat portion of our portfolio. But we also love the ability to diversify and balance our portfolio over time.
And then, really, the fourth thing that it does is, this is a great way for us to, in a disciplined and responsible way, leverage our balance sheet. So I mean, the way we're thinking about it is, this is an effective purchase price of $2.8 billion, so a multiple of 12 and 1/2 times for a billion dollar number one brand. This is a great deal financially, and it's an even better deal strategically.
BRIAN SOZZI: What condition is this asset coming into the Hormel business? I don't think it's-- I don't think it will come as anybody surprised that has followed what Kraft Heinz has been up to the past couple of years. Sure, it had a billion dollars in sales last year, but maybe not invested in as much as a lot of people in the food industry would have hoped for. What are you exactly are you getting?
JIM SNEE: Yeah, you know, I think it's a matter of priority and focus, Brian. I mean, you know, when you think about the Kraft Heinz portfolio and the size of their businesses and some of their brands, you know, this was probably lower tier. It didn't get the TLC, the priority and focus that it deserved. For us, it skyrockets to the number one brand. So it's going to get all the attention, all the focus, all the resources that it needs.
And so we'll be investing in the brand. We'll be investing in advertising, in marketing. We'll be spending a lot of time on innovation. This is what we do. We are a great brand stewards. We know how to grow brands. We've got a great legacy of growing brands. Think about Hormel Pepperoni, Spam, Skippy. I mean, again, it's really just what we do. We know how to grow the brands, and we know how to innovate.
BRIAN SOZZI: On that whiteboard, when you're plotting through an acquisition of this size, what is your ultimate vision for Planters, specifically on innovation? Where do you think they can play, and where do you think they're not playing right now?
JIM SNEE: Well, we see it just as so complementary to our current portfolio. I mean, the innovation pipeline for us is going to be very robust. So it can go a lot of different directions. One of the things that we've already talked about is the enhanced exposure it gives us in the convenience store channel. So with our current portfolio, we've got very little business there.
Planters has a great presence, and we'll be able to actually leverage some of our portfolio into that space. And so, this is a win-win in so many ways in terms of innovation, in terms of channels. Like I said, there's just countless ways that we can take this portfolio.
BRIAN SOZZI: I also think a lot of people would be surprised to know-- I mean, I know, but I covered the food space for a while. But you also own Skippy and Justin's Nut Butter. So how does adding Planters to that-- can you gain economies of scale? How do you think about it?
JIM SNEE: Yeah, sure. I mean, when we talk about synergies that come with this business, I mean, we know that there's going to be supply chain synergies, which could include procurement of nuts and a number of other things, synergies around S, G, and A. I mean, we actually have a lower cost structure in terms of how we run our business.
And as I just mentioned, there's going to be some sales synergies as well. And so we're estimating that we're going to have $50 to $60 million of synergies by 2024, which are really significant. And some of it is due to just what you mentioned. You know, this isn't a stretch for us. This is very adjacent to what we already have with Skippy and Justin's.
BRIAN SOZZI: When does this business-- when will it become accretive to your bottom line?
JIM SNEE: In 2022, so what we've said is in 2022, we expect it to be accretive to the tune of about $0.17 t0 $0.20 a share. I mean, that's a significant lift to our earnings per share.
BRIAN SOZZI: One line in this release, among many, that jumped out to me, you noted-- it was noted this widens the scope for future acquisitions. What do you mean by that?
JIM SNEE: Yeah, I mean, if you think about it, in the snacking space alone, you know, I talked about how we already have a presence in the snacking space. But I don't know that those items fit as squarely in that space as Planters does. And so now, all of a sudden, you think about the avenues in snacking that are now open to us. That's what we meant. It just really opens the aperture for where we can take or go after future acquisitions.
BRIAN SOZZI: Should investors view you more as a meat company or a snacking company?
JIM SNEE: Investors need to view us as a global branded food company. Because that's what we are. The evolution that we've had over the last decade plus has been absolutely incredible. And there was a time when we were viewed as just a meat centric organization. And when you think about how we've reshaped this portfolio over time with some divestitures, some acquisitions, I mean, we're on the path that we want to be on, and that's to be a global branded food company. It's all about the food.
BRIAN SOZZI: How do you think the snacking industry has changed-- has been changed because of the pandemic? You look back a year ago or two years ago, it was all about snack bars and really quick things you can grab on the go. But how do you think the pandemic has changed that, seeing as we're still all, for the most part, contained in our houses, really, in many cases, eating a lot of frozen dinners?
JIM SNEE: Yeah, I think it's really-- the only thing that's changed, Brian, is just the location. So during the pandemic, I mean, snacking has continued to grow. So instead of perhaps being at your office building in your office and snacking, you're now at your home office in your home snacking. So the numbers didn't change dramatically. You know, and we expect that it'll continue to grow. As a matter of fact, snacking continues to be one of the fastest growing categories.
BRIAN SOZZI: Well, before I let you go, Jim, I will leave you this, with this product idea. Dried Spam with Planters nuts, you've got a customer in me on that one.
JIM SNEE: Do we owe you a royalty?
BRIAN SOZZI: I just want to toss that pitch out there while I got you. Jim Snee, Hormel chairman and CEO, always good to see you. Stay safe, and congrats on the acquisition.
JIM SNEE: Thanks, Brian. Always good to be with you.