Hormel: SPAM Not to Filter

SPAM, SPAM, SPAM, SPAM, Lovely SPAM! Wonderful SPAM! (repeat)

--Monty Python's SPAM song

SPAM has been the butt of many a mass consumption food joke, which is ironic considering that the canned product is mainly pork shoulder with added ham meat and a little spice. It's withstood rumors about mystery meat and sharing a moniker with junk e-mail to sell more than enough tins for every person on the planet.

All jokes aside, the producers of SPAM, Hormel (HRL - commentary - Cramer's Take), have a track record of 43 consecutive years of dividend increases. A deflationary environment and an unlikely duplication of market declines (on a percentage basis) in 2009 leaves an opening for investors looking for a solid stock play in the consumer foods sector. Also, considering that Americans tend to turn to reasonably priced canned goods during economic downturns, a SPAMwich sounds like a tasty snack.

Originally a processor of meat and food products, Hormel Foods was founded as George A. Hormel and Company in 1891. Hormel has expanded over the years through a combination of new products, strategic acquisitions and organic growth. The company operates in four segments: refrigerated foods, Jennie-O Turkey Stores, specialty foods and other (which includes the SPAM product line and fresh pork). Hormel distributes its products in all 50 U.S. states and international destinations such as Australia, Canada, China, England, Japan, Mexico and Micronesia. The company employs a direct sales force of over 580 personnel.

Even though four-year annual growth rates were more than 10% for sales and 12% for earnings, Hormel's fourth-quarter and fiscal 2008 earnings down 32% and 4%, respectively. Even with volume and sales increases over all segments in 2008 (with total segment operating profits up 6% over the previous year), fourth-quarter results were negatively impacted by higher beef, pork, feed and fuel costs along with a slowdown in the Hormel Compleats microwave meal business.

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At the time of publication, Gear had no positions in the stocks mentioned.

Steve Gear was director of capital markets at Stockhouse.