Hormel Raises Shareholder Value – Analyst Blog

Hormel Foods Corporation (HRL) authorized the repurchase of up to 5 million common shares. At the end of the first quarter of 2010, Hormel had cash and cash equivalent of $449.1 million. The decision is expected to enhance shareholder value in the coming quarter.

 

Hormel also raised its full-year EPS guidance range from $2.63 to $2.73 per share to $2.68 to $2.78 based on its better-than-expected results in the first quarter.

 

During the first quarter, net earnings were $111.2 million, up 37% from $81.4 million in the same quarter of fiscal 2009. EPS for the quarter was 82 cents, compared to 60 cents in the year-ago quarter. It exceeded market expectations of 68 cents.

 

In addition to these organic growth opportunities, the company is also well positioned for acquisitions to strengthen its growth profile. Given the company’s strong balance sheet and management’s track record of successful acquisition and integration of businesses over the years, we expect acquisitions to play a key role in the company’s growth going forward.

 

Hormel’s recent transactions include Boca Grande Foods Inc. (manufacturer, seller, and distributor of liquid portion products) in June 2008 and Burke Corporation (manufacturer and marketer of pizza toppings and other fully cooked meat products) in August 2007. With its current debt-to-capitalization ratio of around 14%, the company has the financial flexibility to pursue acquisitions.

 

The production and sale of meat and food products is highly competitive. Although the industry’s giants have built powerful brands and possess economies of scale, the barriers to entry are still fairly low. Thus, we maintain our Neutral recommendation.