HRL 30.97 (+0.32%)
US4404521001Consumer Packaged GoodsPackaged Foods

Last update on 2024-06-06

Hormel Foods (HRL) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Piotroski F-Score Analysis for Hormel Foods (HRL) in 2023: final score is 4/9 based on profitability, liquidity, and operating efficiency.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 4

We're running Hormel Foods (HRL) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
0
Number of shares not diluted?
0
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
0

Piotroski F-Score for Hormel Foods (HRL) is 4 out of 9. Key points are: Positive net income and cash flow, operating cash flow higher than net income. Challenges include declining return on assets and leverage, growing current ratio, increased number of shares, and decreased gross margin and asset turnover ratio. Stable positive income over 20 years and sustained positive cash flow are positives, but recent declines may need closer scrutiny.

Insights for Value Investors Seeking Stable Income

Hormel Foods shows financial health in terms of consistent profitability and positive cash flow, scoring 4 on the Piotroski scale. However, concerns are flagged due to declining operational efficiency, leverage, liquidity, and asset management. Therefore, an investor should closely evaluate these trends before investing, as the company’s financial fundamentals exhibit both strengths and weaknesses.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Hormel Foods (HRL)

Company has a positive net income?

Net income signifies a company's profitability after all expenses have been deducted from total revenue, a crucial measure of financial health.

Historical Net Income of Hormel Foods (HRL)

Hormel Foods (HRL) reported a net income of $793,572,000 in 2023, which is positive. This indicates that the company was profitable in that particular year, and thus, according to the Piotroski Analysis, we add 1 point. Looking at the historical data from the last 20 years, Hormel Foods has consistently reported positive net income. The trend in net income shows growth with some fluctuations: from $185.78 million in 2003 to $999.99 million in 2022, with a slight decline to $793.57 million in 2023. This consistent profitability can be considered a positive sign, although the recent decline might warrant a closer look into the underlying causes. Nonetheless, for the criterion of net income being positive, Hormel Foods scores 1 point.

Company has a positive cash flow?

Cash Flow from Operations (CFO) directly indicates the cash a company produces through its core business operations. Positive CFO is a good sign for ongoing profitability.

Historical Operating Cash Flow of Hormel Foods (HRL)

The CFO for Hormel Foods in 2023 stands at $1,047,847,000, which is positive. This indicates that the company is generating more cash from its business operations than it is spending. Additionally, looking back over the last 20 years, Hormel Foods has consistently generated positive cash flow from operations, which further underscores its sustained financial health. This uptrend is favorable, providing evidence of predictability and robustness in cash generation over a long period. Therefore, adding 1 point for this criterion is appropriate based on the data.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) measures how effectively a company is using its assets to generate earnings. An increasing ROA often signals improved efficiency.

Historical change in Return on Assets (ROA) of Hormel Foods (HRL)

For Hormel Foods (HRL), the ROA in 2023 was 0.0593 compared to 0.0769 in 2022, indicating a decline. This change implies a reduction in asset efficiency. Comparing this to the industry's median ROA of roughly 0.282 in 2023 further highlights that Hormel Foods is significantly underperforming relative to its industry peers. The diminishing ROA for HRL deserves closer scrutiny and analysis to determine the underlying causes of this decline.

Operating Cashflow are higher than Netincome?

This criterion examines whether a company’s operating cash flow is higher than its net income. It is crucial because it suggests strong earnings quality and effective cash management.

Historical accruals of Hormel Foods (HRL)

For Hormel Foods (HRL) in 2023, the Operating Cash Flow is $1,047,847,000, which is significantly higher than the Net Income of $793,572,000. This fulfills the criterion and adds 1 point to the Piotroski score. Higher operating cash flow compared to net income is usually a positive indicator as it implies that the company is generating ample cash from its operations, reducing the likelihood of accounting manipulations. Historically, Hormel Foods has consistently displayed robust operating cash flow relative to its net income, indicating sustained operational efficiency.

Liquidity of Hormel Foods (HRL)

Leverage is declining?

Leverage measures a company's debt relative to its equity. A decrease in leverage means reduced debt risk.

Historical leverage of Hormel Foods (HRL)

The leverage for Hormel Foods has increased in 2023 from 0.2473 in 2022 to 0.1754. This means the company's debt relative to its equity has grown, increasing financial risk. Analyzing data over the last 20 years, leverage was historically low, with recent years seeing spikes, necessitating strict debt management.

Current Ratio is growing?

Compare the Changes in Hormel Foods (HRL) Current Ratio between 2022 and 2023. The Current Ratio is a critical indicator of the company's ability to pay short-term obligations, measuring its liquidity level.

Historical Current Ratio of Hormel Foods (HRL)

The Current Ratio for Hormel Foods (HRL) in 2023 is 1.4263, compared to 2.4687 in 2022. This represents a significant decrease. A lower Current Ratio indicates the company might have more difficulty covering its short-term liabilities, which is a negative trend for liquidity. Given this decline, the Piotroski score criterion would not be met, and this criterion would not add a point to the Piotroski score. This unfavorable trend can be contextualized further by examining the 20-year historical data, which shows that the 2023 ratio is not only below 2022 but also significantly below the industry's median ratio of 1.6315 for the same year.

Number of shares not diluted?

This criterion focuses on the change in the number of outstanding shares. It is crucial because a reduction often indicates that the company is buying back shares, which can signify that the company believes in its own growth potential and can lead to higher earnings per share.

Historical outstanding shares of Hormel Foods (HRL)

In 2022, Hormel Foods had 544,918,000 outstanding shares, which increased to 546,421,000 in 2023. This is an increase in outstanding shares, which adds 0 points in the Piotroski score for this criterion. Historically, Hormel Foods has shown varied trends in its number of outstanding shares over the past 20 years. For example, the number was 558,840,000 in 2003, and it has seen fluctuations with occasional reductions, such as in 2017 (539,116,000 shares) and in 2019 (534,578,000 shares). Recent trends indicate a slight increase, suggesting that the company might be issuing new shares. This increase can be interpreted as neutral to slightly negative considering share dilution.

Operating of Hormel Foods (HRL)

Cross Margin is growing?

Gross Margin reflects the percentage of revenue that exceeds the cost of goods sold (COGS), indicating the efficiency of a company's core business activities.

Historical gross margin of Hormel Foods (HRL)

The Gross Margin for Hormel Foods (HRL) decreased from 0.1737 in 2022 to 0.1651 in 2023 which results in a point value of 0 per the Piotroski analysis. This trend signifies a reduction in operational efficiency. Comparing over the last 20 years, HRL had higher margins, but recently margins were outperformed by the industry's median gross margin, which was 0.282 in 2023. Therefore, this negative trend suggests a potential need for Hormel Foods to investigate factors contributing to higher cost of goods.

Asset Turnover Ratio is growing?

Asset Turnover is a measure of a company's efficiency in using its assets to generate revenue. It is calculated by dividing net sales by total assets.

Historical asset turnover ratio of Hormel Foods (HRL)

The Asset Turnover ratio for Hormel Foods decreased from 0.9582 in 2022 to 0.9052 in 2023. This indicates a decline in the company's efficiency in using its assets to generate revenue. Historically, Hormel's Asset Turnover has shown a downward trend over the past 20 years, peaking at 2.0215 in 2005 and reaching its lowest point in 2023 at 0.9052. The steady decrease suggests an ongoing challenge for the company in leveraging its assets effectively. Consequently, based on this criterion, no point is awarded in the Piotroski Analysis as the Asset Turnover did not increase.


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