Hormel Foods (HRL) has a 52-year history of consecutive annual dividend raises, putting it in a group of select companies that can make such a claim. This track record allows Hormel to count itself among the elite Dividend Kings, a small group of stocks that have increased their payouts for at least 50 straight years. You can see the full list of all 25 Dividend Kings here.

Business Overview

Hormel sells a wide array of packaged food products that cater to consumers as well as foodservice customers. Hormel distributes its products directly to hospitals, schools and other commercial clients as well as through a robust network of grocery stores that allow it to reach consumers directly. The company specializes in meat products but has recently acquired its way to some degree of diversification away from a meat-focused set of offerings.

Hormel’s market cap is about $18 billion at present with the dividend yield at 2.3%, and expectations are for the company to do just under $10B of revenue this year. It sells its products in 80 countries around the world and has more than 20,000 employees, so this is a sizable enterprise. Hormel is organized into four distinct business lines: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and finally International and Other.

HRL Brands

Source: 2017 annual report, page 10

The Grocery Products segment consists of processing, marketing and selling shelf-stable food products for the retail market. Refrigerated Foods includes the processing, marketing and sale of branded and unbranded meat products for retail and foodservice customers. Jennie-O operates in the same manner as Refrigerated Foods but focuses only on turkey products. Finally, International and Other contains the company’s joint ventures as well as its small but growing non-US business.

Refrigerated Foods is the largest segment by far, accounting for 48% of total revenue and 45% of total operating profit in 2017. Grocery Products comes in second with 28% of sales and 29% of operating profit while Jennie-O is third with 18% of sales and 19% of operating profit.

International and Other accounted for 6% of sales and 7% of operating profit in 2017. Hormel’s product lines have diversified in recent years but as we can see, it is still beholden to its core market of shelf-stable and refrigerated meat products and of late, growth has been challenging to come by.

Growth Prospects

Hormel is in an industry that does not typically see a lot of growth. After all, meat products may be core to consumers’ buying behaviors but they aren’t exactly a new and exciting product line. Hormel is a consumer staple in the truest sense of the term and as a result of its dominance in the space, 35 of its brands are #1 or #2 in their respective categories. These core brands with strong leadership positions represent about 60% of Hormel’s total sales so they are critically important.

However, if you consider that the majority of the company’s revenue comes from product categories where it already has segment leaders, it is easy to understand why growth may be challenging; the opportunity to expand or improve is necessarily limited for an industry leader.

HRL Growth

Source: 2017 annual report, page 10

Indeed, this chart from the company’s 2017 annual report bears this out as we can see that revenue growth has been challenging to come by to say the least. Last year’s revenue total was actually lower than that of 2014 and while part of that is due to divestitures – which Hormel does frequently – it has also been acquiring to offset those divestitures. The bottom line is that this is what growth looks like for Hormel and it isn’t particularly inspiring.

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