Hormel Foods (HRL, Financial) delivered impressive results with a strong improvement in earnings. The company, however, did see some weakness around some of its segments. Still, Hormel is confident of performing well going forward. It is now working on strategies to improve the performance of its products to improve user engagement. Hormel is also seeing some positive signs from its segments such as Hormel bacon toppings, Wholly Guacamole, and Herdez authentic Mexican foods. Let's take a closer look at its strategies.
Strategies to power growth
The food company is counting on its various segments which are already showing good growth in their respective segments. It is further making some innovative solutions within the Refrigerated Food segment. For example it has plans to introduce products such as HORMEL FIRE BRAISED meats and HORMEL bacon 1 fully cooked Bacon. These additions to its portfolio are expected to attract many customers which will improve its sales leading to good revenue generation in the coming quarters.
However, some analysts were thinking that the dissolution of the partnership of the company with Percept foods might have a negative impact on the margins but the company with these strong financial results proved to be an outstanding performer with the partnership. Going ahead with this trend, Hormel is expecting the profit margins of its Refrigerated Foods segment range between 5% and 8% in the upcoming years. This is a good sign as it strengthens its long term prospects.
Strong demand across the board
Going forward, the Jennie-O-Turkey store is also showing impressive improvement. As the Turkey commodity prices are also high the company is expecting good value added sales for it. Considering these positive signs, Hormel has also increased the investments for this initiative. It is mainly focusing on driving its promotional campaigns to increase the customer engagement. Moreover, its previously undertaken Make The Switch advertising campaign which featured ground turkey tacos is also exhibiting good growth signs and the company is planning to continue this in 2015 as well.
Hormel is also focusing on the international markets as well. It is seeing good growth opportunities in the China and to capture it with price competitiveness, Hormel is engaged in the construction of new Refrigerated Foods plant which it is expecting to be fully on track by 2016. This facility will produce pepperoni, bacon, ham and other refrigerated meat items sold in the foodservice and retail channels within China. With this, Hormel is expecting the International segment operating profit margins in a range of 14% to 17% over the next few years. This is a good long term prospect for the company.
Conclusion
With a trailing P/E of 22.76, Hormel Foods looks reasonable and also with a forward P/E of 18.32 the stock is showing good earnings growth in the near term as well. However, in the long term, the company earnings are not as impressive as it is growing at a CAGR of 10.47% which is lower than the industry average of 13.67%. Thus it is clearly that Hormel might lose market share in the long term however, the short term prospects and earnings growth of the stock looks promising. Hence. Hormel Foods is a good pick as of now and the investors should definitely include it in their portfolio.
