Hormel c.e.o. confident performance sustainable

by Josh Sosland
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BOCA RATON, FLA. – While the company participates in a number of categories that may be characterized as mature, Hormel Foods Corp. is well situated to sustain the exceptional financial performance that has marked the last five years, said Jeffrey M. Ettinger, chairman, president and chief executive officer.

Mr. Ettinger offered a long-term view of the Austin, Minn.-based company Feb. 22 at the Consumer Analysts Group of New York annual conference at the Boca Raton Hotel and Resort in Boca Raton.

His presentation was delivered the same day the company announced first quarter earnings up 34% from the same period in fiscal 2010.

He said the company benefits from a balanced business model unique among protein companies with its large processed foods operations. The company also enjoys balance between retail and food service and between its various operating segments.

The company's growth has allowed heightened reinvestment in advertising, focused principally on its key brands, Mr. Ettinger said. Overall, advertising spending was up 20% in 2010, targeted at a few key brands.
He said response to the advertising boost was particularly notable for Jennie-O Turkey Store. The brand was in a “sweet spot” of opportunity for advertising efficiency in terms of building consumer awareness and intent to buy, he said.

While pepperoni certainly may be characterized as a mature category, Mr. Ettinger said Hormel has achieved 10% compound annual sales growth through innovation.

“The objective was to move beyond pizza into snacks and as an ingredient,” he said.

Pepperoni Minis were successful toward that objective and pepperoni sticks have been introduced more recently.

“There’s plenty of runway left” for pepperoni, Mr. Ettinger said, noting that household penetration currently stands at only 18%. He said dried meat categories have the added benefit of being a shelf stable product category.

An even longer runway exists for the Hormel party tray products with only a 2% household penetration. The product line, featuring Hormel meat, Keebler crackers and Sargento cheese, are promoted for casual gatherings and seasonal events. A particular push is planned for the March college basketball tournament.

The trays and Hormel Natural Choice deli meats were innovations made possible because of new high pressure pasteurization technology which Mr. Ettinger said enhances quality in addition to eliminating potential pathogens. The natural meat line has enjoyed 16% compound annual growth and has a still modest household penetration of 8%. Mr. Ettinger said the company is hopeful about prospects for the line in part because natural foods have enjoyed good growth well beyond the meat category.

Another growth platform, refrigerated entrees and side dishes, moves Hormel beyond the raw meat case and offers a single source for complete meals, Mr. Ettinger said. He estimated household penetration at 7% but said the products have enjoyed 21% compound annual growth.

One category that has not enjoyed as much growth has been the Hormel Compleats line of frozen and shelf stable meals. Mr. Ettinger said the category has suffered as consumers have traded down during the economic downturn but expressed optimism toward its prospects. Strategies to grow sales include new packaging, a children-targeted line of health-conscious meals and stepped up advertising. Longer term, he said Hormel intends to raise the quality bar for the category through product innovation.

While devoting most of his presentation to new products, Mr. Ettinger said heritage products have not been neglected. He noted that the Spam brand has enjoyed 11% compound growth and Hormel chili is up 12%
Asked about merger and acquisition strategies, Mr. Ettinger said the company most likely would maintain its bolt-on approach followed over the past several years. He noted, though, that cash and debt capacity would allow for larger acquisitions.

The company’s current debt load of $350 million will be retired during 2011, and company executives estimated debt levels as high as $1 billion could be sustained.

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