There are no safe havens in the stock market. Every stock carries risk. But some less than others. This column features stocks that have shown one or more of the following characteristics: less volatility, better earnings, larger market caps, safe and increasing dividends. In these times of turmoil, our goal is to show readers better opportunities for investing with fewer risks.

August 2, 2010 - Hormel Foods Corp. (HRL-NYSE) together with its subsidiaries, produces and markets various meat and food products in the United States and internationally. It offers meat products, including fresh, frozen, cured, smoked, cooked, and canned meat.

It also offers nutritional food products and supplements, sugar and sugar substitutes, creamers, salt and pepper products, sauces and salad dressings, dessert and drink mixes, and industrial gelatin products. In addition, Hormel Foods makes refrigerated, microwaveable, multi-portion potato-/pasta-based side dish products.

The company sells through its sales personnel, as well as independent brokers and distributors. It was formerly known as George A. Hormel & Company and changed its name to Hormel Foods Corporation in January 1995. The company was founded in 1891 and is based in Austin, Minnesota.

Hormel makes Spam, the mystery meat in a can that has been a staple for many families for years. We used to take Spam along on fishing trips, just in case. Fried, with some Velveeta on top, it makes quite a meal. Some other brands from Hormel: Dinty Moore, Hormel, Always Tender, Cure 81, Mary Kitchen and several others. It distributes in all 50 states as well as overseas.

Earnings dipped in 2008, to $2.08 after 2007 totaled $2.14. Last year, they bounced back to $2.53. This year, consensus from 10 analysts is for $2.84, then $2.98 in 2011. Fiscal year ends on the last Saturday of October. Third period results will be out on August 20. Expect 59 cents a share vs 57 cents last year. For the fourth quarter, look for 77 cents compared to 77 cents last year in the fourth.

Two divisions saw strong improvement in the second quarter: Specialty Foods and Jennie-O Turkey Store products. The first group makes sugar substitutes, sports nutrition products, and canned meat goods. Jennie-O had a 93% increase in operating profit in the quarter, thanks to low inventory levels at retail stores and higher prices. Also, the company is moving more upscale with its turkey products, offering easy to prepare, mostly microwaveable packages which have higher profit margins.

The only concern that seems imminent is an increase in hog and pork cutout prices. (Pork bellies, where bacon comes from, just reached an all-time high and are up 53% from last year's levels.) The higher costs would impact Grocery Products and Refrigerated Foods groups. That's almost 70% of Hormel's revenues. Most likely the company can pass through most if not all of the higher expense to the consumer. Furthermore, the company can hedge much of these costs in the commodity futures market which will help offset adverse pricing.

More numbers: Trailing P/E is 15.84 while the Forward P/E is 14.51. Price to sales ratio is .86. Price to book is 2.53. Book value is $16.94. Operating margin for the last 12 months was 8.93% and Profit margin was 5.54%. Return on equity was 16.95% and Return on assets was 10.05%.
There's $405.20 million in cash for $3.04 a share. Total debt is $350 million or 13% of capital. Current ratio is 2.51. There are 133.24 million shares outstanding with a Float of 68.52 million. The Hormal Foundation owns 47.7% of the common. Institutions own 29.80% of the Float. The annual dividend is 84 cents, up from 76 cents last year. Dividends have increased every year since 1994, as far back as my records show. The dividend takes 29% of earnings to pay. Ex-dividend date was July 21 for a pay date of August 14.

With a strong balance sheet and good cash flow, the company has several options. It can buy other companies, buy back stock or increase the dividend. Or do all three. One area it must be considering: acquiring an ethnic food producer. The rise of Mexican cuisine in particular has to have caught their attention.

- Company Web site: www.hormel.com

- Ted Allrich