Hormel Announces Stock-Split - Analyst Blog

Hormel Foods Corporation (HRL) authorized a one-for-two stock split. Shareholders of record as of January 31, 2011, will receive two common shares for each common share they currently own. The common shares after the split will confer equal rights and benefits, including dividends, capital interest and future capital remuneration compared to the other common shares issued by Hormel.

The approval of the above will be confirmed on January 31, 2011, at the annual general meeting. Stock-split would definitely enhance shareholders' confidence.

Moreover, shareholders are optimistic about Hormel's organic growth opportunities. Hormel is also well positioned for acquisitions to strengthen its growth profile based on its track record of successful acquisition and integration of businesses over the years. Moreover, given the company's strong balance sheet with no long-term debt burden we expect acquisitions to play a key role in the company's growth going forward.

At the end of fiscal 2010, Hormel wiped off its entire long-term debt burden of $350 million and reclassified into current maturities. At present, the company has sufficient cash and cash equivalent and marketable securities of $467.8 million, an increase from $427.1 million at the end of the previous quarter, to meet its debt burden of $350 million. Thus, Hormel has strong liquidity positions and has the financial flexibility to pursue better acquisitions.

Hormel's recent transaction includes the acquisition of Don Miguel Foods Corp., one of the leading providers of branded frozen and fresh authentic Mexican flavored appetizers and snacks. We expect the Don Miguel acquisition to help Hormel penetrate convenience stores, club stores and supermarkets.

Hormel initiated EPS guidance for fiscal 2011 and expects it in the range of $3.10 - $3.20, an increase from $2.89 reported during fiscal 2010. Thus, the stock currently retains its Zacks #1 Rank (short term Strong Buy rating).

Although the food market is highly competitive, a greater share of value-added branded products in Hormel's product-mix will help it to strengthen its margins and reduce exposure to commodity prices in the long term. However, intense competition from competitors like ConAgra Foods Inc. (CAG), Kraft Foods Inc. (KFT), and Tyson Foods Inc. (TSN) together with a huge dependence on raw materials does not bode well.