Hormel's Missed Opportunity
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Maybe it's not the sexiest company in the world, but Hormel (NYSE: HRL) sure has some sexy potential. An interview with CEO Jeffrey Ettinger in the Aug. 1 Wall Street Journal revealed that the company, whose stock price has doubled in the last six years, has barely no international presence.
Taking a look at their latest 10Q, international operations accounts for about 4% of sales. Though this grew by 11% over the quarter, it is still tiny compared to competitors such as ConAgra (NYSE: CAG) with 11% or Kraft (NASDAQ: KRFT) with 53% (29% of which is in developing markets and growing ravenously).
Mr. Ettinger understands this massive opportunity (oversight?) and said their "goal is to grow the international team at about twice the rate of the domestic." He goes on to say, "We just put an expat manager on the ground in Japan and Korea." Missing something? What about China?
With food scandal after food scandal in China, appetite for foreign food, or at least foreign-branded food, is massive. Though the Chinese food market is still driven by value, the middle class -- defined in China as having a third of income going to discretionary spending -- is growing. As this group grows, its appetite for foreign brands will grow as well.
Unfortunately, food import rules in China are notoriously restrictive (go figure), so Hormel might have a tough time. They do, however, have the option of developing a brand name in China through export, and eventually using their existing relationships on the ground in China to move into a domestic operation.
Hormel under Jeffrey Ettinger is a great operation. Mr. Ettinger has been kind to the stock price; even though it has doubled under his tenure, it has been languishing now for more than a year. The stock is fairly affordable as it is with a P/E of 15.91 vs. peer's KFT at 19.70 and CAG at 21.78, but the growth that is necessary to turn this one into a real buy is out there. Just look East.
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