Hormel Foods Corporation (HRL) is a global branded food company that has been delivering consistent value to its shareholders for decades. Founded in 1891 in Austin, Minnesota, Hormel has grown from a small pork processor to a diversified leader in the food industry, boasting a portfolio of iconic brands such as SPAM, Applegate, Jennie-O, and Hormel Black Label.
Hormel's Business Overview and History
Hormel's success is rooted in its ability to adapt and innovate over its 134-year history. The company started as a small local pork packing plant named George A. Hormel & Company. In 1926, it changed its name to Geo. A. Hormel & Company and began expanding beyond the local market. The 1930s saw the introduction of the iconic SPAM canned ham product, which became a staple during World War II and helped establish Hormel as a leading producer of canned and packaged meat products.
Over the following decades, Hormel continued to diversify its product portfolio, acquiring brands like Dinty Moore stew and expanding into turkey products with Jennie-O. The company faced significant challenges in the 1970s and 1980s, including a worker strike that lasted almost a year and fluctuations in commodity prices. Despite these obstacles, Hormel remained committed to innovation and expanding its offerings.
Hormel became a publicly traded company in 1928 and has since grown to become a Fortune 500 global branded food company. Today, Hormel operates through three reportable segments: Retail, Foodservice, and International. The company has manufacturing facilities across the United States and sells its products in over 80 countries worldwide.
The Retail segment, which accounts for the largest portion of Hormel's revenue, focuses on the processing, marketing, and sale of food products sold predominantly in the retail market in the United States. This segment includes the company's flagship brands like SPAM, Applegate, and Hormel Black Label. The Foodservice segment, on the other hand, concentrates on the processing, marketing, and sale of food products for foodservice, convenience store, and commercial customers in the United States. The International segment processes, markets, and sells Hormel products internationally, including the company's international joint ventures and royalty arrangements.
Hormel's diversified portfolio and geographic reach have been key drivers of its long-term success. In fiscal year 2024, the company reported total revenue of $12.1 billion, with the Retail, Foodservice, and International segments contributing 62%, 25%, and 13% of total revenue, respectively. The company's net income for the same period was $914 million, reflecting a net profit margin of 7.6%.
Robust Financial Performance and Shareholder Returns
Financials
Hormel's financial performance has been consistently strong, with the company delivering solid top-line growth and profitability over the years. The company's revenue has grown at a compound annual growth rate (CAGR) of 3.2% from fiscal year 2020 to 2024, while its net income has increased at a CAGR of 4.9% during the same period.
In the most recent quarter, Hormel reported revenue of $2,988,813,000 and net income of $170,575,000. The company's operating cash flow for the quarter was $309,206,000, with free cash flow of $237,039,000. Year-over-year growth showed flat net sales compared to the prior year quarter, but organic net sales increased 1%. Organic volume growth in the Foodservice segment was partially offset by lower volume and net sales in the Retail and International segments.
Hormel's strong cash flow generation has also enabled the company to reward its shareholders through a steadily increasing dividend. The company has paid a dividend for 386 consecutive quarters, making it a Dividend Aristocrat. In fiscal year 2024, Hormel paid a total dividend of $1.13 per share, representing a dividend yield of 2.4% based on the company's current stock price.
Liquidity
Hormel's balance sheet remains strong, with a debt-to-equity ratio of 0.25 as of the end of fiscal year 2024. The company's current ratio and quick ratio, which measure its ability to meet short-term obligations, stand at 2.45 and 1.31, respectively, indicating a robust liquidity position.
As of the most recent quarter, Hormel reported cash holdings of $840,400,000. The company maintains a $750 million unsecured revolving credit facility, with no outstanding borrowings from this facility as of January 26, 2025. This strong liquidity position provides Hormel with financial flexibility to pursue growth opportunities and navigate potential challenges.
Navigating Challenges and Driving Innovation
Like many companies in the food industry, Hormel has faced its share of challenges in recent years. The COVID-19 pandemic, for instance, disrupted the company's supply chain and operations, leading to temporary closures and production adjustments. However, Hormel's diversified business model and agile response have allowed it to navigate these challenges and emerge stronger.
To drive long-term growth, Hormel has also been proactive in investing in innovation and transforming its business. In 2023, the company launched its "Transform and Modernize" initiative, which aims to enhance the company's processes, portfolio, and value creation through strategic investments in people, data, and technology. The initiative is expected to deliver $100 million to $150 million in additional benefits in fiscal year 2025 and beyond.
Hormel's commitment to innovation is also evident in its new product development efforts. The company has introduced a range of successful new products, such as the Applegate frozen breakfast sandwiches and Hormel Black Label Oven Ready bacon, which have resonated with consumers and contributed to the company's growth.
Segment Performance
Retail Segment
The Retail segment, which consists primarily of the processing, marketing, and sale of food products sold predominantly in the retail market in the United States, delivered strong performance in the first quarter of fiscal 2025. Notable brands that showed growth include the SPAM family of products, Applegate natural and organic meats, Hormel Black Label bacon, Jennie-O ground turkey, Wholly guacamole, and Hormel pepperoni. However, the segment also faced declines in sales of snack nuts due to production disruptions at the Suffolk, Virginia facility. Overall, the Retail segment's net sales decreased 1.1% in the first quarter compared to the prior year period.
Segment profit for the Retail business declined 20.3% in the first quarter. While the benefits from the Company's Transform and Modernize (TM) initiative and margin growth in the Emerging Brands and Convenient Meals Proteins verticals helped mitigate the impact, the segment was negatively affected by lower sales, higher raw material costs within the Snacking and Entertaining vertical, overall higher input costs, and unfavorable whole turkey dynamics.
Foodservice Segment
The Foodservice segment, which focuses on the processing, marketing, and sale of food products for foodservice, convenience store, and commercial customers in the United States, delivered organic volume and net sales growth of 1.6% and 5.0% respectively in the first quarter of fiscal 2025. This growth was driven by strong performance across premium prepared proteins, turkey, premium bacon, and breakfast sausage categories. Products such as branded Jennie-O turkey items, Hormel Fire Braised meats, Café H globally inspired proteins, and Cure 81 ham saw robust volume and net sales growth.
However, segment profit for Foodservice declined 7.6% in the first quarter as the higher sales were primarily offset by margin pressures in non-core businesses.
International Segment
The International segment, which processes, markets, and sells the Company's products internationally, saw strong volume and net sales growth in China and exports, such as SPAM luncheon meat, Skippy peanut butter, and fresh pork in the first quarter of fiscal 2025. However, this growth was more than offset by softness in Brazil and lower commodity turkey exports.
Segment profit for the International business increased 4.1% in the first quarter, as improved export margins and growth in China were partially offset by softness in Brazil and lower equity in earnings.
Outlook and Risks
Hormel's management has provided a positive outlook for the company's future performance. For fiscal year 2025, the company has reaffirmed its organic net sales growth outlook of 1% to 3% and adjusted diluted earnings per share expectations of $1.58 to $1.72. This guidance reflects the company's confidence in its ability to navigate the current market environment and capitalize on the ongoing strength of its value-added portfolio.
For the second quarter of fiscal 2025, Hormel expects retail net sales to be comparable to the prior year, mid-single-digit growth in organic net sales for the foodservice segment, and high single-digit growth in the international segment. The company anticipates growth in the value-added portfolio and benefits from the Transform and Modernize initiative to be partially offset by lower investment income and higher investments. The bottom line is expected to be comparable to the first quarter and below the prior year.
However, Hormel's business is not without risks. The company faces ongoing challenges related to commodity price fluctuations, supply chain disruptions, and evolving consumer preferences. Additionally, the company's international operations expose it to currency fluctuations and geopolitical risks.
Despite these risks, Hormel's diversified business model, strong brand portfolio, and commitment to innovation position the company well for long-term growth. The company's consistent financial performance, shareholder-friendly policies, and strategic initiatives make it an attractive investment opportunity for investors seeking exposure to the food industry.