Hormel Foods Looks Appetizing in this Market

"From Your Desk Drawer to Delicious - in 90 Seconds. People on the go expect more from their meals. You want it fast, you want it tasty and you want the convenience of packaging that lets you eat without disrupting your busy schedule."

Hormel Foods (HRL) got that right! I discovered Hormel's line of Compleats microwave meals while wandering in the supermarket a few days ago. I was very excited with the line. As reiterated in one of my last posts, "May you leave in interesting times", you can bump into interesting investment opportunities by just paying attention to what you see while doing your personal shopping.

Compleats is a line of surprisingly, well, complete meals that do not require refrigeration and that are ready with just 90 seconds in the microwave. Clearly designed with the office dweller in mind, the excerpt of the Compleats web page with which I started this post proves to be very insightful. Effectively, office workers who prefer to have lunch at the office are always on the lookout for meals that are satisfying, hearty and yet convenient to carry, store and prepare. There are not that many options out there: if you want to remain in the office during lunch time, you have to either deal with frozen dinners – if there is a freezer anywhere near your cube – or some energy bars. That's it. It is that or trying to make it through the day with a bag of Cheetos in your stomach. Now, there some other options out there, aren't they? What makes the Compleats proposition so compelling? I would summarize its competitive advantages as follows:

1. A fairly complete, hearty hot meal. All other non-frozen alternatives are mostly soups or very simple pasta-based meals that are not very satisfying or nutritious.
2. Extreme convenience: most of the microwavable alternative solid meals require some sort of preparation that can be messy and prone to embarrassing accidents in an office environment.
3. Easy storage: Meals with the same level of heartiness and sophistication can only be found in the frozen category, which require refrigerated storage and longer cooking times.

In researching this product, I found it out that even though it is not really new, it was recently relaunched with the new name of "Compleats" and the new packaging, a simple sleeve that let the consumers understand the revolutionary nature of the product. The introduction of the Compleats line couldn't come at a better time. Adverse economic conditions mean that many office workers who used to go out for lunch are re-considering their options. Even the cheapest fast-food alternatives out there will make you spend $7-$10 for a lunch. A Compleats meal goes for around $3. Scratching eating out and replacing it with Compleats meals is quick way to save more than $100 a month. Not too shabby.

In my opinion, the Compleats line will become one of Hormel Foods' shining stars, with a great potential to beef up the Company's bottom line. It comes at a great juncture as well. Hormel is not a particularly exciting company, but its share price shows the steady growth you'd look for in a keeper. Its margins, as with the rest of the processed food industry, have been under pressure due to the increasing costs in commodities experienced during the last couple of years. These cost pressures are subsiding, which means we could see interesting upward surprises in Hormel's profits moving forward. At this point, Hormel is really looking like a tasty investment worth taking a bite out of.

Stock position: None.

Comments

[Leser:]

Good article, Rafael Grillo. I think all your stated observations and calculations are right.
The only question I have is about the the nutritional aspect of the meals, which I have eaten often and find very tasty. If they are not frozen, do they have more preservatives? If so, that's a negative as people get more health conscious in their eating habits, right?
This is not a rhetorical question. I really would like to know, both as a consumer and investor.
Thanks,
Leser

2008 Oct 19 05:47 PM

[Urbane Gori...:]

I was just watching 'Modern Marvels' on the History channel and they did a show on Swansons 'TV Dinners'. I remember being appalled by them when I was a kid.

jegan ;-)

2008 Oct 19 07:05 PM

[Rafael Grillo:]

Thank you for your comment, Leser. I am not a food expert, but I think your concerns are being addressed by Hormel in two ways:

a) they recently launched their "healthy" line. From their website:

"The new line of Hormel Compleats provides on-the-go adults with a quick and tasty lunchtime meal solution that works with a healthy nutrition plan.

Meets USDA guidelines for “healthy lifestyle”
Under 320 calories
Under 10 grams of fat and less than 3 grams saturated fat
0 grams trans fats
600 mg or less of sodium
Provides 2+ grams of fiber and up to 22 grams of protein
Contains Vitamin A, C or Iron"

When I discovered the line, I was quite surprised by the reasonable caloric content of their products.

b) I understand that the meals are preserved by the vacuum process they follow (equivalent to canning), rather than relying on high levels of preservatives .

In any case, consumer choices are limited when dealing with lunch. My impression is that the Compleats meals are quite competitive in terms of nutritional values vs. the alternatives.

2008 Oct 20 11:42 PM

[User 283623:]

As a consumer I have been buying Hormel products at many occasions, even more so now when I am stationed abroad in China. I've appreciated imported products by companies such as Hormel, since I thought that their concern and respect for animal treatment would be better than the one here in China.

My, was I wrong. As the video recorded undercover by PETA from a farm supplying Hormel with pigs/pork, the animal rights was not exaclty a primary concern. Warning for strong images.
getactive.peta.org/cam...

2008 Oct 22 08:45 AM