Grocery Products Refrigerated Foods Jennie

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Kannu Priya
Min-Min Chen
Varinthorn(Build) Saengpanyarak
Pattharaporn(Pauline) Lertphaiboonsiri
May 1st 2012
Agenda
 Introduction
 Stock Market Prospect
 Industry
 Hormel Business
 Financial Analysis
 Multiples
 DCF
 Recommendation
Introduction
GIC : 30 Consumer Staple
30202030 Packaged Foods & Meats
“Hormel is a multinational manufacturer and distributer of a variety of value-added meat and
food products sold to retail and food-service clients.”
Market Cap
Current Price (April29)
52 week high
52 week low
EPS(ttm)
P/E(ttm)
PEG
Div. Yld
7.56 B (NYSE)
$28.97
30.50
25.87
1 year Implied EPS growth
7-10 growth
17%
4.44%
Greenblatt
Over 5 years
EBIT/Tang
39%
1.67
17.33
1.74
2.10%
EBIT/EV
10%
Total
49%
Stock Market Prospect
Hormel Food
Last Price: 28.94
EPS $1.74
EPS $1.08
Dow Jones
Source: Yahoo! Finance
Industry Overview- Busy life
62 % of meals
at home
Prep time ≤ 6 mins
Meat to
Meals
Source: Hormel annual report 2011
Time for better burger
Americans eat 40
bill burgers/ Year
A person eats 150
Burgers/ Year
Source: http://eatthis.menshealth.com/content/worst-burgers-america
Better burgers A
person saves
10 or 15 pounds/
year
Meat Processing Industry
Current Market Size 2012
179.4 B
Annual Growth 07-12
2.4%
Annual Growth 12-17
1.4%
Life Cycle:
Mature
Concentration:
Medium
Revenue
Volatility: Medium
Barrier to entry:
Medium
Source: IBIS World report 31161 Meat, Beef, and Poultry processing in the US 2012
External Market Drivers
Households with higher incomes are
able to spend more on meat.
Drive by meat price and public
health perception from medical
studies.
Source: IBIS World report 31161 Meat, Beef, and Poultry processing in the US 2012
External Market Driver
Meat price
Demand &
Supply
Meat Price 2010-2012
160
140
120
Price
100
80
Beef
60
Pork
40
Turkeys
20
0
Source: IBIS World, Hormel annual report 2011
External Market Driver
International Trade& Regulation
Higher Disposable
Income in emerging
market
Free Trade Agreement
Export
Growth
Import 6%
of Domestic
Demand
Intensive US meat
production
-World’s largest beef and
poultry producer
-3rd-largest pork producer
Tariffs protect domestic
producers
Source: IBIS World report 31161 Meat, Beef, and Poultry processing in the US 2012
Company’s Business
 More than 500 products
 Brand and Unbranded Products
 One of the most vertically integrated
company in processed foods industry
 Founded in 1891
 Engraved in people’s lifestyle
 Named “R&D Team of year” by Food
Processing Magazine
 Balanced Diversified Portfolio
(Λ Total Volume/ Λ Price) = 0.3
Source: “Company Profile” page from www.hormelfoods.com,
Hormel Foods Investor day presentation 2011
Company’s Business
Building
Brand
Operating
Efficiency
Innovation
Focus
Company’s Products
Grocery Products
Hormel Chilli, Mexican Products,
Compleats Microwave meals, and
SPAM product family
Segment Sales 2011
13%
Refrigerated Foods
Meal ingredients and side-dish, Pepperoni
minis, Country Crock, Natural Choice, Party
trays, Lloyds barbeque tubs
53%
Jennie-O Turkey Store
Fresh Turkey, Turkey bacon, Turkey burgers,
whole Turkey, Nacho platters
Specialty Food
Diamond Crystle Brand, Century Foods International,
Nutritional Foods, Supplements
All Other (International)
Source: Hormel Foods Annual Report 2011
1990s: Partnerships within Mexico, China,
Philippines and Japan for SPAM, microwave
meals
19%
11%
4%
Trusted Brand
Legacy
Brands
Source: Hormel Foods 2011 Investor Day
Trusted Brand
#1 22 brands #1 market shares
•
•
•
•
Over 75% of Refrigerated products represent #1 or #2 in
their category
Grocery products position inhibit #1-#3 share position
Jennie-O-Turkey is ranked #2 in Turkey segment
Products in specialty segment exceed 60% market share
Source: Hormel Foods 2011 Investor Day
Building Brand
• Marketing their trusted brands
• Advocate fun and healthy food through variety of media
• Advertising spending increased by 20% in 2011
Source: Hormel Foods 2011 Investor Day, Hormel
Annual Report 2011
Innovate Solutions
 21% of sales from new




products introduce
since 2000
Social gatherings
The Center of a Great
Meal
Natural Choice
Foodservice Solutions
Source: Hormel Foods 2011 Investor Day
Innovate Solutions
 2011 New Products – Quick Prep Meals
Source: Hormel Foods 2011 Investor Day
Operating Efficiency
Source: Hormel Foods 2011 Investor Day
Operating Efficiency
 Market Conditions impact both input costs and
potential revenue
 Margins have improved from 10% to 15%
Source: Hormel Foods 2011 Investor Day
Growth Potential
 Market its existing trusted




Brands
Innovate Life-style Product
Solutions
Operating Efficiency
International Markets
Acquisitions success
Source: Hormel Foods 2011 Investor Day
Acquisitions
• Effective February 1, 2010, the Company completed the
acquisition of the Country Crock chilled side dish business from
Unilever United States Inc. This line of microwaveable,
refrigerated side dishes complements Lloyd’s barbeque product
lines within the Refrigerated Foods segment.
• Country Crock remains a registered trademark of the Unilever
Group of Companies and is being used under license.
• Internationally, the Company markets its products through
Hormel Foods International Corporation (HFIC), a wholly
owned subsidiary.
Source: Hormel annual report 2011
Acquisitions
• On October 26, 2009, the Company completed the formation of MegaMex Foods,
LLC ,a 50 percent owned joint venture which markets Mexican Foods in the United
States.
Grocery
Refrigerated
(in thousands)
Products
Foods
JOTS
Foods
All Other
Total
Balance as of October 25, 2009
$ 123,316
$85,923
$ 203,214
$ 207,028
$674
$ 620,155
Goodwill acquired
Balance as of October 31, 2010
$ 123,316
Goodwill acquired
Balance as of October 30, 2011
$ 123,316
8,868
$94,791
1,861
$96,652
Specialty
$ 203,214
$ 203,214
$ 207,028
$674
$ 207,028
8,868
$ 629,023
$674
1,861
$ 630,884
• During the Company’s fourth quarter of fiscal 2010, MegaMex acquired Don
Miguel Foods Corp., a leading provider of branded frozen and fresh authentic
Mexican line of Snacks
• During the Company’s fourth quarter of fiscal 2011, MegaMex also acquired
Fresherized Foods.
Source: Hormel annual report 2011
Revenue Growth
Source: Hormel annual report 2011
Financial Position & Performance
Figures in Thousands ($)
2006
2007
2008
2009
2010
2011
Depreciation
121,101
126,738
126,189
127,138
125,591
114,689
CAPEX
141,516
125,795
125,890
96,961
89,823
104,118
Acquisitions
78,925
125,101
27,225
701
28,104
7,207
Repurchases
36,978
86,794
69,551
38,147
69,574
152,930
Dividends Paid
75,840
81,092
95,531
101,376
109,374
129,975
Financial Position & Performance
The growth in EPS on a
diluted basis, has been
growing after the
recessionary impact in the
years 2008 to 2009
The Debt to Asset ratio of
(0.03) for Hormel is the
lowest compared to other
companies operating in
the similar business
Financial Position & Performance
Although the revenue
growth got a setback
in 2009 due to
economic slowdown
and change in
consumer
preferences,
Hormel’s operating
margin, EBITDA and
net profit margin
have been gradually
increasing over the
years.
Return on Equity
Profit margin
Assets turnover
Financial Leverage (A/E)
ROE
2009
5.30%
1.77
1.74
16.29%
2010
5.54%
1.78
1.68
16.61%
2011
6.07%
1.86
1.60
18.02%
Comparable Companies
Stock
ConAgra
Foods, Inc.
Sara Lee
Corp
Smithfield
Foods Inc.
Tyson
Foods Inc.
Dole Food
Co.
H. J. Heinz
Company
Hormel
Enterprise Enterprise
Value/Reven Value/EBIT
ue
DA
Ticker
Stock Price
Trailing
P/E
CAG
25.91
13.89
1.01
SLE
22.02
25.55
SFD
21.23
TSN
EPS
Revenue
EBITDA
8.14
1.87
13060
1620
1.41
10.88
0.86
9020
1170
9.19
0.4
4.65
2.31
13000
1120
18.22
11.31
0.25
5.16
1.61
32980
1560
DOLE
8.48
19.36
0.32
6.38
0.44
7220
359.23
HNZ
53.31
17.77
1.84
10.65
3.00
11490
1990
HRL
29.08
17.38
0.91
9.15
1.67
8010
861.448
Mean
26.14
15.94
1.00
7.84
1.77
13494.29
1328.46
Median
22.02
14.54
1.01
8.14
1.87
11490
1480
Comparable Companies
Multiples
Implied price Per
Share
Enterprise Value
P/E
$27.02
EV/EBITDA
$26.40
$6,959.33
EV/Revenue
$27.90
$7,357.05
DCF Assumption
Source: Hormel’s Food Corporation: Outperformance, Zack’s Equity Research
Recommendation
Market [email protected]/30/2012 29.06 weight
Multiple price
DCF price
Fair Value
26.40 20%
36.36 80%
34.37
 Buy 100 shares Hormel at market price
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