Kannu PriyaMin-Min ChenVarinthorn(Build) SaengpanyarakPattharaporn(Pauline) Lertphaiboonsiri

May 1st 2012

Agenda

IntroductionStock Market ProspectIndustryHormel BusinessFinancial AnalysisMultiplesDCFRecommendation

Introduction

GIC : 30 Consumer Staple30202030 Packaged Foods & Meats

“Hormel is a multinational manufacturer and distributer of a variety of value-added meat and food products sold to retail and food-service clients.”

Market Cap7.56 B (NYSE)

Current Price (April29)

$28.97

52 week high 30.5052 week low 25.87

EPS(ttm) 1.67P/E(ttm) 17.33

PEG 1.74Div. Yld 2.10%

1 year Implied EPS growth

17%

7-10 growth 4.44%

  EBIT/Tang EBIT/EV TotalGreenblatt

39% 10% 49%

Stock Market Prospect

Hormel FoodLast Price: 28.94

Dow Jones

EPS $1.08

EPS $1.74

Source: Yahoo! Finance

Industry Overview- Busy life

62 % of meals at

home

Prep time ≤ 6 mins

Meat to Meals

Source: Hormel annual report 2011

Time for better burger

Source: http://eatthis.menshealth.com/content/worst-burgers-america

Meat Processing Industry

Current Market Size 2012 Annual Growth 07-12 Annual Growth 12-17 179.4 B 2.4

%1.4%

Source: IBIS World report 31161 Meat, Beef, and Poultry processing in the US 2012

External Market Drivers

Households with higher incomes are able to spend more on meat.

Drive by meat price and public health perception from medical studies.

Source: IBIS World report 31161 Meat, Beef, and Poultry processing in the US 2012

External Market Driver

Meat priceDemand &

Supply

Source: IBIS World, Hormel annual report 2011

External Market Driver

International Trade& Regulation

Source: IBIS World report 31161 Meat, Beef, and Poultry processing in the US 2012

Company’s Business

More than 500 productsBrand and Unbranded ProductsOne of the most vertically integrated

company in processed foods industryFounded in 1891Engraved in people’s lifestyleNamed “R&D Team of year” by Food

Processing MagazineBalanced Diversified Portfolio(Λ Total Volume/ Λ Price) = 0.3

Source: “Company Profile” page from www.hormelfoods.com, Hormel Foods Investor day presentation 2011

Company’s Business

Company’s Products

Grocery Products

Refrigerated Foods

Jennie-O Turkey Store

Specialty Food

All Other (International)

Segment Sales 2011

13%

53%

19%

11%

4%

Hormel Chilli, Mexican Products, Compleats Microwave meals, and SPAM product family

Meal ingredients and side-dish, Pepperoni minis, Country Crock, Natural Choice, Party trays, Lloyds barbeque tubs

Fresh Turkey, Turkey bacon, Turkey burgers, whole Turkey, Nacho platters

Diamond Crystle Brand, Century Foods International, Nutritional Foods, Supplements

1990s: Partnerships within Mexico, China, Philippines and Japan for SPAM, microwave meals

Source: Hormel Foods Annual Report 2011

Trusted Brand

Legacy BrandsLegacy Brands

Source: Hormel Foods 2011 Investor Day

Trusted Brand

#1 22 brands #1 market

shares #1 22 brands #1 market

shares

• Over 75% of Refrigerated products represent #1 or #2 in their category

• Grocery products position inhibit #1-#3 share position

• Jennie-O-Turkey is ranked #2 in Turkey segment• Products in specialty segment exceed 60% market

share

Source: Hormel Foods 2011 Investor Day

Building Brand

• Marketing their trusted brands• Advocate fun and healthy food through variety of

media • Advertising spending increased by 20% in 2011

Source: Hormel Foods 2011 Investor Day, Hormel Annual Report 2011

Innovate Solutions

21% of sales from new products introduce since 2000

Social gatheringsThe Center of a

Great MealNatural ChoiceFoodservice

SolutionsSource: Hormel Foods 2011 Investor Day

Innovate Solutions

2011 New Products – Quick Prep Meals

Source: Hormel Foods 2011 Investor Day

Operating Efficiency

Source: Hormel Foods 2011 Investor Day

Operating Efficiency

Market Conditions impact both input costs and potential revenue

Margins have improved from 10% to 15%

Source: Hormel Foods 2011 Investor Day

Growth Potential

Market its existing trusted Brands

Innovate Life-style Product Solutions

Operating EfficiencyInternational MarketsAcquisitions success

Source: Hormel Foods 2011 Investor Day

Acquisitions

• Effective February 1, 2010, the Company completed the acquisition of the Country Crock chilled side dish business from Unilever United States Inc. This line of microwaveable, refrigerated side dishes complements Lloyd’s barbeque product lines within the Refrigerated Foods segment.

• Country Crock remains a registered trademark of the Unilever Group of Companies and is being used under license.

• Internationally, the Company markets its products through Hormel Foods International Corporation (HFIC), a wholly owned subsidiary.

Source: Hormel annual report 2011

Acquisitions

• On October 26, 2009, the Company completed the formation of MegaMex Foods, LLC ,a 50 percent owned joint venture which markets Mexican Foods in the United States.

• During the Company’s fourth quarter of fiscal 2010, MegaMex acquired Don Miguel Foods Corp., a leading provider of branded frozen and fresh authentic Mexican line of Snacks

• During the Company’s fourth quarter of fiscal 2011, MegaMex also acquired Fresherized Foods.

  Grocery Refrigerated   Specialty    

(in thousands) Products Foods JOTS Foods All Other Total

Balance as of October 25, 2009 $ 123,316 $85,923 $ 203,214 $ 207,028 $674 $ 620,155

Goodwill acquired - 8,868 - - - 8,868

Balance as of October 31, 2010 $ 123,316 $94,791 $ 203,214 $ 207,028 $674 $ 629,023

Goodwill acquired - 1,861 - - - 1,861

Balance as of October 30, 2011 $ 123,316 $96,652 $ 203,214 $ 207,028 $674 $ 630,884

Source: Hormel annual report 2011

Revenue Growth

Source: Hormel annual report 2011

Financial Position & Performance

Figures in Thousands ($) 2006 2007 2008 2009 2010 2011

Depreciation 121,101 126,738 126,189 127,138 125,591 114,689

CAPEX 141,516 125,795 125,890 96,961 89,823 104,118

Acquisitions 78,925 125,101 27,225 701 28,104 7,207

Repurchases 36,978 86,794 69,551 38,147 69,574 152,930

Dividends Paid 75,840 81,092 95,531 101,376 109,374 129,975

Financial Position & Performance

The growth in EPS on a diluted basis, has been growing after the recessionary impact in the years 2008 to 2009

The Debt to Asset ratio of (0.03) for Hormel is the lowest compared to other companies operating in the similar business

Financial Position & Performance

Although the revenue growth got a setback in 2009 due to economic slowdown and change in consumer preferences, Hormel’s operating margin, EBITDA and net profit margin have been gradually increasing over the years.

Return on Equity

2009 2010 2011Profit margin 5.30% 5.54% 6.07%Assets turnover 1.77 1.78 1.86Financial Leverage (A/E) 1.74 1.68 1.60ROE 16.29% 16.61% 18.02%

Comparable Companies

Stock TickerStock Price

Trailing P/E

Enterprise Value/Reven

ue

Enterprise Value/EBIT

DA EPS Revenue EBITDA

ConAgra Foods, Inc. CAG 25.91 13.89 1.01 8.14 1.87 13060 1620Sara Lee Corp SLE 22.02 25.55 1.41 10.88 0.86 9020 1170Smithfield Foods Inc. SFD 21.23 9.19 0.4 4.65 2.31 13000 1120Tyson Foods Inc. TSN 18.22 11.31 0.25 5.16 1.61 32980 1560Dole Food Co. DOLE 8.48 19.36 0.32 6.38 0.44 7220 359.23H. J. Heinz Company HNZ 53.31 17.77 1.84 10.65 3.00 11490 1990

   

Hormel HRL 29.08 17.38 0.91 9.15 1.67 8010 861.448

   

  Mean 26.14 15.94 1.00 7.84 1.77 13494.29 1328.46

  Median 22.02 14.54 1.01 8.14 1.87 11490 1480

Comparable Companies

MultiplesImplied price Per

ShareEnterprise Value

P/E $27.02  

EV/EBITDA $26.40 $6,959.33

EV/Revenue $27.90 $7,357.05

DCF Assumption

Source: Hormel’s Food Corporation: Outperformance, Zack’s Equity Research

Recommendation

Buy 100 shares Hormel at market price

Market price@04/30/2012

29.06weight

Multiple price 26.40 20%DCF price 36.36 80%Fair Value 34.37