How Will Hormel Foods Perform In The Next 2 Years?

American food company Hormel (NYSE: HRL), delivered a relatively soft financial performance in fiscal 2017. The company’s top line for 2017 fell to $9.17 billion from $9.52 billion the year before, largely due to headwinds due to volatility in commodity prices. 3 out of the company’s 5 primary segments (Grocery Products, Refrigerated Foods & International) reported solid numbers, but that was offset by declines at the Jennie-O Turkey Store and Specialty Foods segments. We expect some volatility in commodities to persist in 2018, but tailwinds from strategic acquisitions and value-added growth should help offset that pressure.

We expect the company’s Diluted EPS to jump from $1.57 in 2017 to $1.85 by 2019. Our Interactive Dashboard shows our forecasts for the company, and you can make changes to our estimates to see how those changes would impact Hormel’s earnings.

Factors Contributing To Hormel’s Growth

Hormel’s growth will largely be driven by portfolio expansion. This should receive a boost from strategic acquisitions, including Ceratti, Fontanini, and Columbus. Hormel is not only trying to expand its product offerings through acquisitions, but is also trying to become a global company by expanding internationally.

Hormel’s another focus is on cost-effective measures which will help the company to maintain healthy margins. Hormel is currently focusing on divesting its non-strategic assets and has also decided to combine its Grocery and Specialty products segments to improve synergies and maintain costs. If we look at the Operating Margin, it has improved from 10% in 2014 to 14% in 2017 and we expect this trend to continue.

Taking these factors into account, we expect COGS as % of sales to remain around 78% and Operating margin to be about 15% by 2019 which will help the company’s bottom line performance remain consistent.

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