Hormel Foods Diversifies With $775 Million Acquisition of Applegate Farms

Hormel Foods has announced its acquisition of natural and organic meat company, Applegate Farms for approximately $775 million.

This marks the largest deal on record for Hormel, and speaks to the continuing efforts of the group’s chief executive, Jeffrey M. Ettinger to further diversify the company after buying Skippy in 2013, and CytoSport, the maker of Muscle Milk last year.

Although Applegate Farms is in the meat industry, overlap of the two companies will be minimal as half of Applegate’s sales are currently through organic and natural food retail outlets, allowing Hormel to expand into what Mr. Ettinger labels the “holistic product area”. However, as mainstream consumers are increasingly seeking out products with minimal ingredient lists, that have been humanely raised without antibiotics, are gluten-free and grass-fed, among other criteria, Hormel will be able to facilitate Applegate’s shift into more mainstream supermarkets.

Another benefit brought to Hormel through the deal is the fact that Applegate’s operations on the east coast have not been affected by the spreading avian flu that has decimated the poultry, turkey, and egg industries in the Midwest. Although operating profit from Hormel’s Jenny-O business grew 41%, and sales increased 15% for the quarter ending April 26, accounting for approximately 20% of the group’s revenue, Hormel has issued repeated warnings that its Jenny-O brand will likely be hurt by the flu. The Hormel barns that have been affected by the virus have been cleaned, disinfected, and stand empty, however the company will not recommence operations until it can be assured that the avian flu will not hit its new flocks.

Despite these setbacks, Hormel’s second quarter sales increased by 1.5% to $2.3 billion as earnings reached $180.4 million, compared to $140.1 million for the time period the year before. The acquisition of Applegate is projected to add approximately $165 million in net cash flow for Hormel, or between seven to eight cents per share in the next fiscal year.