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Hormel (HRL) to Drive Inorganic Growth on Columbus Buyout

Hormel Foods Corporation HRL will soon acquire California-based Columbus Manufacturing Inc. (Columbus) in a bid to fortify its retail deli business going forward. This $850-million deal marks Hormel Foods’ third buyout this year and is so far, the company’s largest acquisition.

Columbus is an eminent millennial-focused brand and produces various forms of deli, salami and Italian specialty meat products. Moreover, of late, the company has been offering on-the-go and snacking product categories such as salami-and-cheese trays and prepackaged charcuterie platters. The company’s products are primarily targeted for the youth. Columbus currently generates revenues of roughly $300 million on an annualized basis and anticipates a 5% growth going forward.

Post the completion of Columbus acquisition, Hormel Foods will win control over two state-of-the-art processing plants of Columbus in California. The newly acquired business will be integrated with the Refrigerated Foods segment of Hormel Foods.

Inside Story

Hormel Foods is strengthening its business on the back a balanced business model that seeks to form a diversified product portfolio and expand production capacity over time.

In addition to this, the company has gained a robust reputation for integrating its acquired assets and has also secured increased value out of its previous acquired brands. Prior to the Columbus buyout deal, Hormel Foods completed two big acquisitions in 2017. On Aug 17, it acquired the Fontanini brand from Capitol Wholesale Meats, Inc., for $425 million. Further, on Aug 24, the company announced that it would soon buy Ceratti brand from Brazilian meat producer — Cidade do Sol. It expects to close the Columbus acquisition deal the end of this year.

However, we notice that over the last month, shares of this Zacks Rank #3 (Hold) company lost 5.6%, wider than the 2.2% loss incurred by the industry.

The company perceives that issues such as lower turkey prices, extensive competition and escalating operating expenses would continue to hurt its Jennie-O Turkey Store segment’s performance in the quarters ahead. Also, other headwinds such as input price inflation or stiff industry rivalry remain causes of concern.

Stocks to Consider

Some better-ranked stocks in the same space are listed below:

Energizer Holdings, Inc. ENR has an average positive earnings surprise of 23.02% for the last four quarters and currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Inter Parfums, Inc. IPAR also holds a Zacks Rank of 2 and recorded an average positive earnings surprise of 18.08% over the trailing four quarters.

Snyder's-Lance, Inc. LNCE, another Zacks Rank #2 stock, generated an average positive earnings surprise of 2.10% during the same time frame.

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