China’s tariff hike
Hormel Foods (HRL), one of the leading names in the meat production and packaged foods industry, has seen its stock price fall 4% on a YTD (year-to-date) basis as of April 6, 2018.
The stock fell 2.4% on April 2 after China announced increases in tariffs on the import of some 128 US commodities, including pork products. China is one the largest markets for US pork.
The announcement of higher tariffs on April 2 saw the prices of other meat producers, such as Tyson Foods (TSN), Sanderson Farms (SAFM), and Pilgrim’s Pride (PPC), also fall. Tyson Foods fell 6.2% on April 2, while Sanderson Farms and Pilgrim’s Pride fell 1.2% and 2.4%, respectively.
The hike in tariffs is expected to lead to a supply glut that will grip the pork products industry. Given its reduced demand, the price of pork in the United States could fall further, affecting meat producers’ top lines.
On a YTD basis, Tyson Foods has fallen 13.5% as of April 6, 2018. Sanderson Farms and Pilgrim’s Pride have fallen 18.2% and 23.6%, respectively, YTD. On a YTD basis, the S&P 500 Index has fallen ~2.6%.
Trade war imminent?
China’s tariff hike was retaliation for US President Donald Trump’s proposed tariff hike on Chinese goods, such as steel and aluminum products. President Trump has constantly underscored the need to reduce the budget deficit—which is over $375 billion—with China. If they’re put into action, the tariff hikes by both countries could lead to a full-blown trade war. The global economy would be affected, according to trade analysts.
In this series on Hormel Foods’ growth strategies, we’ll discuss in detail the company’s inorganic expansion efforts and supply chain initiatives. We’ll then take a quick look at its recent quarterly performance. Finally, we’ll assess the company from a valuation perspective and see what analysts recommend for it going forward.