Fitch Affirms Hormel's IDR at 'A'; Outlook Stable

SOURCE: Fitch Ratings

July 31, 2008

via Market Watch

CHICAGO, Jul 31, 2008 (BUSINESS WIRE) -- Fitch Ratings has affirmed the following ratings for Hormel Foods Corporation (Hormel):

--Long-term Issuer Default Rating (IDR) 'A';

--Bank facility 'A';

--Senior unsecured notes 'A';

--Short-term IDR 'F1';

--Commercial paper 'F1'.

The Rating Outlook is Stable. Approximately $350 million of debt is affected by these actions.

The ratings and Outlook reflect Hormel's consistently low leverage, growing operating income, and meaningful cash flow generation. Hormel's strong credit profile is the result of both its conservative operating and financial strategy.

For the latest 12-month period ended April 27, 2008, Hormel's total debt-to-operating earnings before interest, taxes, depreciation, and amortization (EBITDA) was 0.5 times (x), funds from operations (FFO) adjusted leverage was 1.1x, operating EBITDA-to-gross interest expense was 20.0x and free cash flow margin was 2.4%. Hormel's credit measures are strong for the rating category, leaving the company significant financial flexibility at current rating levels.

The ratings incorporate Fitch's expectations that Hormel will continue to manage its balance sheet prudently and that debt will not increase significantly in the near term. Consolidated EBITDA margins, which average 10%, are anticipated to remain relatively stable, despite inflationary headwinds, and free cash flow is likely to be allocated toward fill-in acquisitions and moderate levels of share repurchases.

Roughly 75% of Hormel's revenue and 60% of its operating profit is derived from commodity-oriented meat and poultry products, which are subject to higher volatility. However, the diversification provided by its higher margin shelf-stable Grocery Products and faster growing Specialty Foods businesses provides increased stability to its ongoing cash flow generation.

As with other food manufacturers, Hormel is absorbing higher than normal commodity input cost inflation, but its extensive use of supply contracts, incremental pricing and hedging has enabled it to maintain margins. Hormel's focus on branded value-added turkey, pork and beef offerings improves its ability to raise prices and its overall profitability.

During the first half ended April 27, 2008, consolidated revenue and operating income grew 7% and 18%, respectively. Excluding acquisitions, sales increased approximately 5%, with 3% due to tonnage and 2% being attributed to pricing. Hormel benefited from sales of higher margin products, such as Hormel Compleats and Natural Choice lunchmeats, and lower pork input costs.

With over $6 billion in annual revenue, Hormel is a manufacturer of branded and non-branded meat and food products. Over 95% of sales are generated in the United States and approximately 70% are distributed via retail channels. Key brands include Hormel, Jennie-O Turkey Store, and SPAM. The company's operating segments and their contribution to 2007 revenue and operating profit were as follows: Grocery Products (14% and 28%), Refrigerated Foods (53% and 34%), Jennie-O Turkey Store (19% and 21%), Specialty Foods (11% and 12%) and All Other (3% and 5%). The Hormel Foundation owns approximately 47% of the company's common stock.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times.

Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

via Business Wire

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