Hormel Foods Corporation: A Value Buy?

Hormel Foods Corporation (HRL), the maker of SPAM and Dinty Moore stews, is seeing consumers flock to its stay-at-home canned meats and food products as dining out becomes unfashionable. The company has surprised on estimates 3 out of the last 4 quarters by an average of 7.88%. Hormel is trading at 13.4x forward earnings.

Company Description

Hormel Foods manufactures various food and meat products. The company, founded in 1891, owns well-known consumer brands such as Jennie-O, SPAM, Hormel, and Dinty Moore.

SPAM is Still King

On Feb 19, Hormel Foods reported first-quarter 2009 earnings that surprised on Wall Street estimates by 17.65%, or 9 cents a share. Earnings per share were 60 cents and analysts expected 51 cents.

Net earnings fell 8% to $81.4 million from $88.2 million in the year ago quarter. Sales rose to $1.69 billion from $1.62 billion in the first quarter of 2008.

The company is seeing changes in consumer behavior as more people eat at home. The Grocery Products segment, which includes canned meat items such as SPAM, Dinty Moore stews and Hormel chili, rose 6% year over year.

However, the Refrigerated Foods segment experienced a rough quarter. Pork operations posted a loss due to higher than expected hog costs and weaker then expected primal markets.

The segment also saw foodservice sales decline during the quarter which is the flip side of the Grocery Products segment. As more consumers ate at home, foodservice sales slowed as both business and personal travel declined.

2009 Guidance Confirmed

The company reaffirmed its 2009 guidance of $2.15 to $2.25 per share despite the turbulent economy.

Consensus Estimates Rise

Given the company’s 2009 guidance, covering analysts have been adjusting their estimates. For the second quarter, consensus estimates have fallen 1 cent to 50 cents in the last 7 days.

4 out of 8 covering analysts, however, raised 2009 full-year guidance by 2 cents in the last week to $2.23 per share, which is at the higher end of the company’s guidance range.

Value Fundamentals

Hormel Foods is a Zacks #1 Rank (strong buy) stock. It is trading at 13.4x forward earnings. HRL has a price-to-book of 2.16. The company also has an outstanding 5-year average return on equity (ROE) of 16.18%.

Hormel has been paying dividends for decades. On Feb 15, the company paid its 322nd consecutive quarterly dividend. The stock currently yields 2.40%.

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