Kannu Priya
Min-Min Chen
Varinthorn(Build) Saengpanyarak
Pattharaporn(Pauline) Lertphaiboonsiri May 1 st 2012

 Introduction
 Stock Market Prospect
 Industry
 Hormel Business
 Financial Analysis
 Multiples
 DCF
 Recommendation

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
7.56 B (NYSE)
$28.97
30.50
25.87
EPS(ttm) 1.67
P/E(ttm) 17.33
PEG 1.74
Div. Yld 2.10%
1 year Implied EPS growth
7-10 growth
17%
4.44% Greenblatt
EBIT/Tang
39%
EBIT/EV
10%
Total
49%
Over 5 years

EPS $1.08
Hormel Food
Last Price: 28.94
EPS $1.74
Dow Jones
Source: Yahoo! Finance

62
% of meals at home
Prep time
≤
6 mins
Meat to
Meals
Source: Hormel annual report 2011

Americans eat 40 bill burgers/ Year
A person eats 150
Burgers/ Year
Better burgers A person saves
10 or 15 pounds/ year
Source: http://eatthis.menshealth.com/content/worst-burgers-america

Current Market Size 2012 Annual Growth 07-12 Annual Growth 12-17
179.4 B 2.4% 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

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

Meat price
Demand &
Supply
Meat Price 2010-2012
160
140
120
100
80
60
40
20
0
Beef
Pork
Turkeys
Source: IBIS World, Hormel annual report 2011

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

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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

Building
Brand
Operating
Efficiency
Innovation
Focus

Grocery Products
Hormel Chilli, Mexican Products,
Compleats Microwave meals, and
SPAM product family
Refrigerated Foods
Meal ingredients and side-dish, Pepperoni minis, Country Crock, Natural Choice, Party trays, Lloyds barbeque tubs
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) 1990s: Partnerships within Mexico, China,
Philippines and Japan for SPAM, microwave meals
Source: Hormel Foods Annual Report 2011
Segment Sales 2011
13%
53%
19%
11%
4%

Legacy
Brands
Source: Hormel Foods 2011 Investor Day

#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

• 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


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


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

 2011 New Products – Quick Prep Meals
Source: Hormel Foods 2011 Investor Day

Source: Hormel Foods 2011 Investor Day

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Market Conditions impact both input costs and potential revenue
Margins have improved from 10% to 15%
Source: Hormel Foods 2011 Investor Day

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
Market its existing trusted
Brands
Innovate Life-style Product
Solutions
Operating Efficiency
International Markets
Acquisitions success
Source: Hormel Foods 2011 Investor Day

• 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

• 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.
(in thousands)
Balance as of October 25, 2009
Goodwill acquired
Balance as of October 31, 2010
Goodwill acquired
Balance as of October 30, 2011
Grocery
Products
$ 123,316
-
$ 123,316
-
$ 123,316
Refrigerated
Foods
$85,923
8,868
$94,791
1,861
$96,652
JOTS
Specialty
Foods
$ 203,214 $ 207,028
-
$ 203,214 $ 207,028
-
$ 203,214 $ 207,028
All Other
$674
-
$674
-
$674
Total
$ 620,155
8,868
$ 629,023
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

Source: Hormel annual report 2011

Figures in Thousands ($)
Depreciation
CAPEX
Acquisitions
Repurchases
Dividends Paid
2006 2007 2008
121,101 126,738 126,189
141,516 125,795 125,890
78,925 125,101 27,225
36,978 86,794 69,551
75,840 81,092 95,531
2009 2010 2011
127,138 125,591 114,689
96,961 89,823 104,118
701
38,147
28,104 7,207
69,574 152,930
101,376 109,374 129,975

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

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.

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%

Stock
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Foods, Inc.
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Corp
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Foods Inc.
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Foods Inc.
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Co.
H. J. Heinz
Company
Ticker Stock Price
Trailing
P/E
Enterprise
Value/Reven ue
Enterprise
Value/EBIT
DA
CAG
SLE
25.91
22.02
13.89
25.55
1.01
1.41
8.14
10.88
SFD
TSN
DOLE
HNZ
21.23
18.22
8.48
53.31
9.19
11.31
19.36
17.77
0.4
0.25
0.32
1.84
4.65
5.16
6.38
10.65
EPS
1.87
0.86
2.31
1.61
0.44
3.00
Revenue EBITDA
13060
9020
13000
32980
7220
11490
1620
1170
1120
1560
359.23
1990
Hormel HRL 29.08
17.38
Mean
Median
26.14
22.02
15.94
14.54
0.91
1.00
1.01
9.15
7.84
8.14
1.67
8010 861.448
1.77
1.87
13494.29
1328.46
11490 1480

Multiples
P/E
EV/EBITDA
EV/Revenue
Implied price Per
Share
Enterprise Value
$27.02
$26.40
$27.90
$6,959.33
$7,357.05

Source: Hormel’s Food Corporation: Outperformance, Zack’s Equity Research

Market price@04/30/2012 29.06 weight
Multiple price
DCF price
Fair Value
26.40 20%
36.36 80%
34.37
 Buy 100 shares Hormel at market price