Hormel Foods Corp.

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Hormel Foods Corp.

founded: 1891

Contact Information:

headquarters: 1 hormel pl. austin, mn 55912-3680 phone: (507)437-5611 fax: (507)437-5489 url: http://www.hormel.com

OVERVIEW

Hormel Foods Corporation has come a long way from its original founding in 1891. George Hormel's original meat packing plant, housed in an abandoned creamery, has grown into one of the leading multinational manufacturers and marketers of food products in the world. Hormel is the producer of consumer-branded meat and food products, many of which are among the best known in the food industry. Among Hormel's most popular products are SPAM, canned luncheon meat, and Dinty Moore stews.

The full range of products produced and marketed by Hormel includes pork products, such as hams, bacon, and sausages; canned luncheon meats, meat spreads, chili, hash, and stews; microwaveable meals; condiments, such as salsas; ethnic foods; and frozen processed foods.

With 110,000 employees worldwide, Hormel is a truly multi-national company. Known until 1991 as George A. Hormel & Co., the company is still headquartered in the town of its birth, Austin, Minnesota, which is also home to Hormel's flagship plant and research and development division. Within the United States, Hormel products are sold everywhere, testifying to the strength of the company's national sales force, which has offices in major cities across the country. Other Hormel manufacturing facilities are located in Stockton, California; Atlanta, Georgia; Aurora, Illinois; Algona, Knoxville, and Osceola, Iowa; Wichita, Kansas; Fre-mont, Nebraska; Oklahoma City, Oklahoma; and Beloit, Wisconsin. Also based in Fremont, Nebraska is a hog slaughtering operation.

Additional raw material for Hormel's pork processing operations comes from the hog slaughtering facility of Rochelle Foods, a wholly owned subsidiary based in Rochelle, Illinois. Jennie-O Foods Inc., another wholly owned subsidiary, is one of the largest U.S. producers of whole and processed turkeys selling to both retail and food service outlets. Jennie-O Foods is headquartered in Willmar, Minnesota. Dan's Prize is a wholly owned Hormel subsidiary, based in Cornelia, Georgia. Dan's Prize's manufacturing facility in Long Prairie, Minnesota produces roast beef, pastrami, corned beef, prime rib, and other cooked meats for delicatessens and other food service operations.

On the international front, Hormel Foods has been particularly active in recent years, though it is no newcomer to exports, having first sold abroad in 1905. Hormel Foods International Corporation (HFIC), also based in Austin, Minnesota, has negotiated international joint venture and license agreements in Australia, China, Colombia, Costa Rica, Denmark, England, Japan, Korea, Mexico, Panama, the Philippines, Poland, Spain, and other countries. HFIC sells to more than 40 nations worldwide.

COMPANY FINANCES

For fiscal 1997, ending October 31, 1997, Hormel reported net earnings of $110 million on revenue of $3.30 billion, up from fiscal 1996 net income of $79 million on revenue of $3.10 billion. Per-share earnings climbed to $1.43 in fiscal 1997 from $1.04 in 1996. In fiscal 1995, net earnings totaled $120 million on revenue of $3.04 billion, compared with fiscal 1994 earnings of $118 million on revenue of $3.07 billion. Per-share earnings in fiscal 1995 were $1.57, compared with $1.54 in fiscal 1994.

In fiscal 1997 meat products accounted for 54 percent of Hormel's total sales, while prepared foods brought in about 27 percent of total revenue. The remaining 19 percent of revenue was accounted for by sales of poultry and other products.

ANALYSTS' OPINIONS

Ralph Acampora, chief technical analyst at Prudential Securities, in an interview in the April 1998 issue of Money magazine, said the stock of Hormel Foods, which had hit a new 52-week high only a short time before, was among the handful of small and midcap names he favored. Acampora, who first won Wall Streeters' respect for his accurate prediction in mid-1995 that the Dow-Jones Industrial Average (DJIA) would soon hit the 7000-mark, also predicted the DJIA would top 10,000 in 1999.

HISTORY

In 1891 George Hormel took an abandoned creamery and turned it into a meat packing plant, including a smokehouse and slaughterhouse. To compete with larger meat processors, Hormel needed to expand. In 1899 he updated facilities to include refrigeration, new pumps and engines, an electric elevator, smokehouses, and a hog kill. Additional land was acquired in 1901 for constructing a casing processing room and a machine shop.

Hormel acquired his first patent in 1903 with Dairy Brand and began to open distribution centers. George Hormel established export business in 1905 and by the end of World War I, exports accounted for about 33 percent of the company's yearly sales.

Jay Hormel, George's son, became the company's president in 1929. Jay continued expanding the product line and introduced Dinty Moore beef stew, Hormel chili, and SPAM luncheon meat.

During World War II Hormel sold more than 60 percent of its production to the U.S. Government. In 1941 Hormel was manufacturing 15 million cans of SPAM per week for U.S. servicemen abroad. The brand became so widely known that it became the object of criticism and ridicule that would live on well into the future.

After the war Hormel continued to expand by renovating many of its plants and opening new locations. Canning operations were improved and Hormel began to contract independent canning businesses to produce Hormel items. The company also began producing gelatin from pork skins to make use of its raw material.

New products were also introduced after the war. Mary Kitchen Roast Beef Hash, Corned Beef Hash, and Spaghetti and Beef in Sauce were first offered in 1949. Hormel continued to build new facilities throughout the United States during the 1950s and 1960s. The popular Hormel Cure 81 ham was a major success during the 1960s. The ham was a boneless, skinless, cured ham without the shank.

By the 1980s the meat industry began to shrink. The cost of hogs had increased and Hormel struggled. The company was forced to re-evaluate its place in the market. Hormel left the slaughtering business in 1988. The company moved into the microwaveable foods market and introduced Top Shelf, unrefrigerated meals in a vacuum pack, and its Light & Lean Franks.The company expanded into ethnic foods with its purchase of House of Tsang and Oriental Deli brands. Jennie-O Foods, a turkey-processing business, was also bought by Hormel.

Since the company was expanding to embrace many different types of foods, a decision was made to change its name to Hormel Foods Corporation in 1993. The company had been known as George A. Hormel & Co. for more than 100 years.

In 1996 Hormel set up a joint venture with Patak Spices Ltd., a leading Indian food producer, to market Indian food products in the United States. The company also bought a 21-percent interest in Campofrio Alimentacion SA, a Spanish food company, for $64 million. At home Hormel acquired premium chili producer Stagg Foods.

Rising hog prices sent Hormel's earnings spiraling downward in 1996. The company sold off its subsidiary Farm Fresh Catfish Co. and struck an agreement with El Torito to market El Torito's line of Mexican food products in supermarkets.

STRATEGY

Hormel's strategy has included the acquisition of companies with products that fit into Hormel's product mix. The company purchased Melting Pot Foods in 1995 to further increase its ethnic foods market share.

The company also believes in expanding its operations and enhancing its facilities where it is most cost effective. Hormel constructed a new turkey processing plant in Montevideo, Minnesota, and expanded its gelatin/specialized proteins plant in Davenport, Iowa.

INFLUENCES

Consumer trends have influenced Hormel's business decisions over the years. As consumers became increasingly health-conscious during the 1980s and 1990s, sales of traditional meat products began to decline. To appeal to the consumer for lower fat content, Hormel introduced its Light & Lean 97 brands. The line includes all-beef franks, boneless ham, turkey breasts and smoked dinner links.

Convenience has also been a trend of the 1990s. To meet the customer demand for convenience, Hormel introduced cold cuts packaged in recloseable zippered thermoform.

CURRENT TRENDS

More and more businesses are promoting eating and movie-watching as a desirable combination. In 1994 Hormel teamed up with Ingram Entertainment to cross-promote its food products with Ingram's videos. The agreement allowed Hormel consumers a $3.50 discount on Ingram videos. In 1996 Hormel and New Line Home Video Inc. signed a similar contract to cross-promote the direct-to-sell-through release of "The Adventures of Pinocchio."

Although it has made no commitment to use irradiation in the production of any of its products, Hormel has been dogged since 1996 by Food & Water, a small Vermont-based consumer group unalterably opposed to irradiation of food products. When Hormel sent a couple of observers to a Dallas meeting about the irradiation process, Food & Water contacted the company and demanded a pledge that Hormel would never use irradiation on any of its products. When the company refused, Food & Water placed an ad in Hormel's hometown newspaper implying some sort of link between Hormel and irradiation. As recently as the spring of 1998, Hormel spokesman Allan Krejci said of irradiation: "We haven't yet determined whether we would use it."

PRODUCTS

Hormel has three main product lines: meat products, food service, and prepared foods. The meat products group includes such products as Cure 81 ham, Black Label bacon, and Light & Lean meats. The food service sector includes such product lines as Sandwich Maker turkey breast and roast beef and Super Select boneless pork loin and pork chops. Hormel's prepared foods line includes both shelf-stable and frozen foods such as SPAM and Hormel chili.

FAST FACTS: About Hormel Foods Corp.

Ownership: Hormel Foods Corp. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: HRL

Officers: Joel W. Johnson, CEO, Chmn., & Pres., 54, $970,000; Don J. Hodapp, Exec. VP & CFO, 59, $605,000; Gary J. Ray, Exec. VP, 51, $510,000; Stanley E. Kerber, Group VP, Meat Products, 59, $445,000

Employees: 11,000

Principal Subsidiary Companies: Hormel's principal subsidiaries are Dan's Prize Inc., Hormel Foods International Corp., Jennie-O Foods Inc., and Rochelle Foods.

Chief Competitors: Active in several sectors of the food industry, Hormel Foods Corporation faces competition in all areas of its operations. Some of its major competitors are: Campbell Soup; ConAgra; CPC; General Mills; Goya; Grand Metropolitan; Heinz; IBP; Nabisco Holdings; Nestle; Perdue; Philip Morris; Sara Lee; Smithfield Foods; Thorn Apple Valley; and Tyson Foods.

CORPORATE CITIZENSHIP

During World War I Hormel employed women for the first time. The company and its employees were involved in the war effort, producing meat, buying Liberty bonds, and donating an hour's pay each day to the Red Cross.

The Hormel Foundation was instituted to serve religious, charitable, scientific, literary, or educational causes. The foundation financed a research facility at the University of Minnesota called the Hormel Institute. The Institute performed research on fats and other lipids, analyzing their effects on the human body.

Hormel supports education, welfare, and cultural and charitable community service organizations. In education, Hormel has financed scholarships. Hormel has also supported capital building projects. The company has provided funding for cancer, heart disease, arthritis, and diabetes research, and assists hospitals and health clinics. In addition, Hormel has donated financial assistance to organizations for handicapped, elderly, and homeless people. Hormel also has donated its products to Second Harvest and its food banks. The company has assisted the American Red Cross and Salvation Army with food and donations during emergencies and natural disasters.

GLOBAL PRESENCE

Hormel continues its expansion globally. The company plans to increase its international business through exports, joint ventures, and licensing agreements.

The company sells its products in more than 40 countries. Major markets for Hormel include Australia, Hong Kong, Japan, Korea, Mexico, Panama, Philippines, and the United Kingdom.

In 1994 the company teamed up with Beijing Agriculture Industry and Commerce to establish Beijing Hormel Foods Company Ltd. in China. Under the Hormel brand, western-style meat products were to be marketed to the Chinese but modified to meet local tastes.

In 1995 Hormel formed a joint venture with Grupo Herdez S. A. de C. V. of Mexico called Hormel Alimentos S. A. de C. V. The partnership enabled Hormel to tap into the Mexican market. Also in 1995, Hormel finalized an agreement with Darling Downs Bacon Cooperative Association Ltd. in Australia. The venture, named KR Hormel Foods, replaced a previous licensee agreement. The joint venture greatly increased Hormel's expansion opportunities in Australia.

In January 1998, only weeks before the observance of lunar New Year, products produced at Shanghai Hormel Foods Co. Ltd. first hit the Chinese market. The sausage, hams, hot dogs, and bacon, on sale at Chinese food stores, were produced inside the factories of Shanghai Dachang Meat Processing Complex, Hormel's partner in the joint venture. Plans call for the Shanghai joint venture to process 10,000 tons of meat annually.

EMPLOYMENT

Hormel has had its share of labor disputes. After a bitter labor strike in 1933, Jay Hormel instituted the "Annual Wage Plan" where employees received weekly pay, flexible working hours, and the guarantee of a year's notice before any employee could be terminated. The company also began to offer profit sharing, merit pay, a pension plan, and a joint earnings plan.

CHRONOLOGY: Key Dates for Hormel Foods Corp.

1891:: Founded as George A. Hormel & Co. by George Hormel
1899:: George Hormel updates facilities, adding, among other things, refrigeration
1903:: Acquires Dairy Brand
1905:: Hormel begins selling products internationally
1929:: Jay Hormel, George's son, becomes president
1933:: Bitter strikers physically remove Jay Hormel from his office and shut off the plant's refrigeration system
1946:: Jay Hormel becomes chairman of the board and H.H. Corey becomes president
1949:: Introduces Mary Kitchen Roast Beef Hash, Corned Beef Hash, and Spaghetti and Beef in Sauce
1954:: Jay Hormel Dies and R.F. Gray becomes Hormel's fourth president
1965:: Adds a new 75,000-square-foot sausage manufacturing building to its Austin plant
1986:: Acquires Jennie-O foods
1993:: Changes name to Hormel Foods Corporation
1995:: Purchases Melting Pot Foods
1998:: Begins selling products produced at Shanghai Hormel Foods Co. Ltd. in the Chinese market

The equal opportunity and affirmative action programs instituted by the company provide all persons who apply with the company "due consideration for employment," and protect all persons employed from "discrimination based on race, color, religion, sex, national origin, age, sexual orientation, disability, or being a veteran of the Vietnam era."

Hormel supports the education of its employees. Onthe-job training is provided for new employees, and the company sponsors courses and in-house workshops to further educate the workforce.