Hormel's Steady Ways Fit Conservative Approach
If you're the kind of investor who prefers to bet on the tortoise rather than the hare, thenHormel Foods ( HRL ) is a candidate for your portfolio.
Steady is Hormel's game. In the past 19 fiscal years ended in October, earnings declined only three times and revenue only twice. The five-year EPS Stability Factor is 8 on a gauge that runs from 0 (calm) to 99 (wild).
The conservative investor might have another reason to favor Hormel. The company is mostly a U.S. story. Last year, 6% of revenue was from international sources.
With questions about Europe's stability and China's economy, the U.S. focus might have appeal.
Recently, Hormel made a splash in the news with the acquisition of Skippy peanut butter. Many noted correctly that this will help Hormel's exposure in China. But by itself, the bump is modest. The acquisition is expected to initially nudge up Hormel's international exposure by only 1% or so.
What's more interesting, perhaps, is that the buy fits Hormel's conservative approach. Skippy is already the No. 1 brand in China. So Hormel has bought a proven winner. It's not as if the company is trying to change China's taste buds.
Skippy, however, could become the gateway product to establishing other Hormel products in China through cross-merchandising. It's easier to piggyback brands onto successful known brands than to start from scratch.
Hormel's other products include La Victoria salsa, Dinty Moore stews and Spam canned meat.
Could Spam take China by storm?
In a way, it already has. Given China's scandals with tainted domestic foods, the American brands enjoy a better reputation. As Bloomberg BusinessWeek reported in 2011, Hormel tweaked the Spam recipe for Chinese tastes and is getting a premium price for it.
Hormel's joint ventures in China began in the 1990s.
Hormel raised the quarterly dividend in November from 15 cents a share to 17 cents. The company has increased the payout for 47 years in a row. The annualized yield is 2%.
Fund ownership has held fairly steady in the past four quarters, ranging from 34 million shares to 37.9 million shares.