Hormel Foods (HRL, Financial) had strong fourth-quarter results. Its revenue and earnings grew 9.5% and 9% respectively for the quarter. Looking ahead, the company is expected to go past its stated 5% growth in sales and 10% growth in earnings this fiscal year 2015. This is quite impressive, given the PED v, which is still persisting in domestic herds. Also, it remains upbeat to increase its production 1% to 2% over fiscal year 2014; that should accelerate its sales performance this year.
Refrigerated foods look promising
Hormel is seeing increasing demand for its new product launches this calendar year. Its product such as HORMEL FIRE BRAISED meats and HORMEL Bacon 1 Fully Cooked Bacon, coupled with the continued growth for its Hormel fully cooked sausages are gaining traction in the markets. Further, the company has launched new products like Hormel REV, A.M. Breakfast REVs. These additions to its already existing strong product portfolio should drive growth for its top line this fiscal year.
In addition, Hormel is expanding its operation for refrigerated foods in China. It is constructing a new refrigerated foods plant in China that should further support its growth. The company plans to inaugurate the plant with live production in the second-half of fiscal 2016. This facility is expected to produce pepperoni, bacon, ham and other refrigerated meat items sold in the foodservice and retail channels within China.
Refrigerated foods had a robust run thoughout the fiscal 2014. The operating profit for the segment surged approximately 45% with its sales up by 9% for the year. This strong growth was due to higher operating margins for pork, which looks promising this year as well. The company plans to increase pork production by 1% to 2% this year. Also, Hormel expects operating profit margins for its refrigerated food to be in the range of 5% to 8% in the coming years, which is healthy return. This should enhance its top line growth and create value for its shareholders going forward.
Jennie-O Turkey Store to join the club
Meanwhile, Hormel is experiencing great momentum for its Jennie-O Turkey Store. Its value added sales coupled with greater commodity turkey prices are improving its sales and operating profit. It is seeing relatively higher sales for its JENNIE-O lean ground turkey and JENNIE-O turkey bacon this quarter. Hormel had registered 4% growth in its sales and significant 23% growth in its operating profit for this segment for fiscal 2014.
Looking ahead, the company is planning to increase its Jennie-O Turkey Store advertising spend this year. Moreover, its "Make The Switch" campaign is fetching a great deal in the markets. Hormel remains upbeat to continue this campaign aggressively this fiscal year in additional United States markets that should boost its sales.
Moreover, the company is planning to ramp up turkey production in fiscal 2015 that should support its value added business. Also, the company expects the lower price for corn should contribute to Jennie-O Turkey Store throughout this fiscal year. It expects Jennie-O Turkey Store segment to deliver operating profit margin of 13% to 17% going forward.
CytoSport business to accelerate sales for its specialty food
Hormel didn’t have pleasing results for its specialty food in the last fiscal. However, the acquisition of CytoSport business should drive growth for its specialty food this year. The company expects this acquisition to deliver incremental earnings of $0.05 per share in fiscal 2015. Going forward, the company expects its specialty foods segment to report operating profit of 8% to 11% this fiscal year.
Apart from these improvements on the cards, Hormel is aggressively tapping its China business, including the export of SKIPPY peanut butter and pork products. This focus and pain should enhance its growth in the International segment in fiscal 2015. Additionally, the company remains quite upbeat to strengthen its brand with a healthy campaign. It plans to increase its advertisement campaign at a double digit for REV snack wraps, SPAM family of products, SKIPPY peanut butter and MUSCLE MILK protein rich products.
Ending remarks and valuations
Hormel Foods looks great with these progresses that should enhance its top as well as bottom lines performance this fiscal year. The analysts expect its earnings to grow at CAGR of 10.47% for the next five years. This indicates reasonable growth for the stock in the future. Also, its short-term returns are good with earning growth of 13.50% this year and 9.50% by next year respectively.
Moreover, Hormel shares quite an encouraging valuation. It has trailing P/E of 23.26 and forward P/E of 18.73. With further improvement expected on its bottom line, the stock should appeal to the investors. Also, it has PEG ratio of 1.96 that continues to support its growth in the long-run. Its profit and operating profit margins are 6.47% and 9.81% respectively for the trailing twelve months. Its balance sheet carries total cash of $334.17 million, which is enough to cover its entire debt of $250.0 million. Hormel has operating cash flow of $746.88 million and levered free cash flow of $530.01 million.
