Hormel Foods (HRL) operates within the foodservice industry wherein it has four business segments, namely grocery products, refrigerated foods, Jennie-O Turkey Store, and International & Other.
The grocery division mainly comprises food products sold to retail outlets, along with nutritional and private-label brands sold to retail, foodservice, and industrial customers. This segment roughly contributes 25% of the company’s revenues.
The refrigerated segment comprises the sale of both branded and unbranded poultry, beef, and pork-based products to retail, commercial, and industrial customers. This is the company’s largest revenue contributor, bringing in nearly 55% of its overall revenue.
Jennie-O Turkey deals with branded and unbranded turkey-based products. It brings slightly more than 10% of the company’s revenue.
The “International and other” segment includes various international joint ventures and royalty agreements along with the results from Hormel Foods International, which sells the company’s products in international markets. This is the smallest revenue generator for the company, bringing in 5-6% of the company’s revenues.
Expectations of Improving Demand From End-Market
The company’s overall sales and volume remain slightly down in Q4 2020 compared to the levels witnessed during Q4 2019. Except for its international division, all the other segments witnessed overall decline in both volume and sales during Q4 2020 vis-a-vis Q4 2019. However, for FY 2020, the company did manage to increase its sales by 1% to $9.6 billion.
During Q4 2020, international sales were mainly boosted by pickup in demand from the retail and foodservice business in China. In its largest business segment (i.e., refrigerated food), HRL was severely impacted by a double-digit decline in its foodservice business that typically represented nearly 40% of its refrigerated food division’s sales.
EPS was down for both the Q4 and FY 2020 compared to the similar period for the previous year. However, on the cash flow front, lower working capital requirements helped the company improve its cash flow from operations for FY 2020 by 22% to $1.1 billion.
Improving inventory levels, labor availability, and easing of supply-chain limitations provided near-future business visibility, prompting the company increase its quarterly dividend for 55 consecutive years. This time, the company increased its dividend from 23.25 cents to 24.5 cents payable to shareholders as of record on January 11, 2021.
Looking forward, the company wants to leverage its products and services to meet the changing trend toward eating-at-home and retail e-commerce. Also, the company remains optimistic about a gradual demand pickup within its traditional foodservice channel.
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