Measured Approach

HORMEL FOODS CORPORATION (NEW YORK:HRL) Data as of: 01/22/2010

Industry:

Current Data
Current Price $38.62 PEG 1.8X
Market Cap ($M) $5,160. EPS TTM ($) $2.53
7
Shares Outstanding (M) 134.0 P/E TTM 15.3X
Institutional Holdings % 28.3% EPS Estimated 2010 ($) $2.67
Insider Holdings % 48.3% P/Estimated EPS 14.5X
Beta 0.39 MA Value ($) $56.29
Latest Quarter Reported 10/25/0 Dividend Yield % 2.2%
9

Hormel Foods Corporation, based in Austin, Minn., is a multinational

manufacturer and marketer of consumer-branded food and meat
products, many of which are among the best known and trusted in the
food industry. The company leverages its extensive expertise,
innovation and high competencies in pork and turkey processing and
marketing to bring quality, value-added brands to the global
marketplace. The company is a member of the Standard & Poor's 500
Index. Hormel Foods was named one of "The 400 Best Big Companies
in America" by Forbes magazine for the 10th consecutive year. The
company enjoys a strong reputation among consumers, retail grocers,
foodservice and industrial customers for products highly regarded for
quality, taste, nutrition, convenience and value. For more information,
visit http://www.hormelfoods.com.

Unilever announced that it has signed a definitive agreement with

Hormel Foods Corporation to sell its Shedd's Country Crock(R) branded
chilled side-dish business in the US. Under the terms of the transaction,
Hormel will market and sell Shedd's Country Crock chilled side-dish
products, such as homestyle mashed potatoes, under a license
agreement.

By the Numbers

Quarterly sales for the last four reported quarters are inconsistent. For
the quarter ending 01/09, sales stood at $1,689.1 million. Over the
next two quarters they declined to $1,574.4 million and then turned up
to $1,675.1 million for the quarter ending 10/09. Reuter’s reports
analyst estimates for the quarter ending 01/10 may be as high as
$1,729.5 million.

The decline in the sales (3.3%) may be attributable to a lack of pricing

power in today’s environment. Historically, sales grew at the rate of

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© Copyright 2009 Ronald Sommer. All Rights Reserved.
4.4% over the past three years and 6.5% over the past five years. The
Company is adding new product through the acquisition of Shedd’s
Country Crock product line and through the introduction of Mexican
foods by its new joint venture MegaMex Foods. These additions should
boost sales.

On the other hand, quarterly earnings held up fairly well. The Company
reported EPS of $0.60 in the quarter ending 01/09 and declines to
$0.59 and $0.57 in the quarters ending 04/09 and 07/09 respectively
before jumping back to $0.77 for the quarter ending 10/09. Reuter’s
reports consensus estimates of $0.68 for the quarter ending 01/10.

Looking ahead, consensus estimates are $2.67 for FY 10 and $2.87 for
FY 11 on sales of $6,782.71 million and $7,111.07 million. The EPS
growth rate exploded for the TTM ending 10/09 to 21.9%. The three
year average EPS growth rate is 7.0% and the five year EPS growth
rate is 8.6%.

The gross margin for the trailing twelve months ending 10/09 (TTM) at
16.8% have held up well and reflect strength when compared with FY
08 and FY 07. Similarly, operating margins have grown from 7.8% in FY
07 to 7.6% in FY 08 to 8.2% in FY 09. Net margins reflect these trends,
as well. Net margin recovered to 5.2% in 10/09 from 4.2% in 10/08.

Both operating and net margins are consistently better than industry
medians. This reflects well on management’s ability to control costs.
Return on Equity at 16.6% and Return on Assets at 9.4% are higher
than in the prior three fiscal years and above industry medians.

Hormel has a strong balance sheet. The current ratio stands at 2.3X
(better than the industry median) and total liabilities to total assets
stand at 42.5%, below the industry median.

Long-term debt stands at $350 million. The times interest earned ratio
is better than 19X.

The Company pays an indicated dividend of $0.84 providing a current

yield of 2.2%.The dividend is well covered and represents a payout of
29.7%. Dividends have grown at an annual rate of 10.7% over the past
three years and 11.1% over the past five years.

Conclusion

We see modest but consistent growth potential for Hormel Foods.

Based on the consensus EPS estimate of $2.87 for FY 11 and our

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© Copyright 2009 Ronald Sommer. All Rights Reserved.
evaluation of risk, we place an investment value of $56.29 on this
company. We think this is a buy.

Disclosure: Author has a long position in HRL.

Please visit http://measuredapproach.wordpress.com for important disclosures.

© Copyright 2009 Ronald Sommer. All Rights Reserved.