COMPANY DESCRIPTION

Hormel Foods is a processor of meat and food products. Co.'s business is reported in five segments: Grocery Products, which process, market, and sell shelf-stable food products primarily in the retail market; Refrigerated Foods, which processes markets, and sells pork and beef products; Jennie-O Turkey Store, which processes, markets, and sells turkey products; Specialty Foods, which package and sell sugar and sugar substitute products, salt and pepper products, liquid portion products, dessert mixes, ready-to-drink products, sports nutrition products, and private label canned meats; and International & Other, which manufactures, markets, and sells Co.'s products internationally. Notable brands include Hormel, Spam, Jennie-O Turkey Store, and Lloyd's. Hormel also sells Country Crock products under license from Unilever and added the Skippy and Muscle Milk brands to its mix.

 

ECONOMIC MOAT

Hormel Foods moat is dug by its large collection of value-added protein brands, which form a strong intangible-asset advantage.   Hormel’s large portfolio of brands provides pricing power and flexibility to generate returns, even if conditions are unfavorable in individual categories. The portfolio of brands gives Hormel negotiating leverage against retailers, due to their brand recognition and ability to drive retail traffic. Hormel’s categories face persistent private-label competition.

 

OUTLOOK

Hormel is performing well in a tough environment.  Jennie-O turkey unit is performing well with new product and strong advertising.  Hormel is focused to leverage the Skippy peanut butter brand (purchased from Unilever in 2013) both at home and abroad.  The $450 million CytoSport deal that was completed in mid-2014 brought Muscle Milk into the brand portfolio.  Muscle Milk line will probably be a nice growth engine for the company. In our opinion the he stock offers good risk-adjusted returns through 2018-2020.