On November 20, Hormel Foods (HRL) stock fell 0.9% after the company announced its fourth-quarter results. The company’s sales of $2.53 billion missed analysts’ consensus estimate of $2.57 billion. However, Hormel Foods’ adjusted EPS of $0.51 was better than the consensus estimate of $0.49.
On November 21, Hormel Foods stock gained ~1.1%. The company has gained 24.8% year-to-date to $45.43 on November 21. In contrast, packaged food manufacturers including Tyson Foods (TSN), Pilgrim’s Pride (PPC), Sanderson Farms (SAFM), and ConAgra’s (CAG) stock prices have declined 27.3%, 36.4%, 22.6%, and 12.7%, respectively.
Hormel Foods expects the top line to grow due to acquisitions (Fontanini, Cerratti, and Columbus Crafts) and more value-added product sales in all of its segments, especially the Refrigerated segment.
The deli is becoming an important part of grocery stores. Consumers want quick and healthy food options when they’re grocery shopping. The fast-growing deli business offers a good opportunity for top-line growth. Hormel Foods has integrated all of its various deli divisions into one single unit under the Refrigerated segment. The Columbus Crafts acquisition will likely help Hormel Foods’ deli division sales.
Hormel Foods plans to invest in advertising for its brands like Hormel Natural Choice, SPAM, Columbus, and Jennie-O. The company expects product innovation to add to the top-line growth. In 2018, new products from the last five years contributed to 14% of the top-line growth. By 2020, the company is confident that 15% of the sales will be driven by innovative products. Under Hormel Foods’ vision 2020 strategy, the company targets 5% and 10% growth in the top and bottom lines, respectively.
On November 21, Hormel Foods was trading at a 12-month forward PE ratio of 24.7x. Since the earnings announcement on November 20, the PE ratio has increased 0.4%.
However, Hormel Foods is trading at a higher valuation multiple compared to its peers. Tyson Foods is trading at a 12-month forward PE ratio of 9.8x. Pilgrim’s Pride, Conagra, and Campbell Soup (CPB) are trading at PE rations of 10.7x, 14.3x, and 15.8x, respectively, as of November 21.