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Rating Action:

Moody's assigns A1 rating to Hormel's $1 billion notes offering

04 Jun 2020

New York, June 04, 2020 -- Moody's Investors Service, ("Moody's) has assigned an A1 rating to $1 billion of 10-year senior unsecured notes being offered today by Hormel Foods Corporation ("Hormel"). The outlook is stable.

Net proceeds from the new notes will be used for general corporate purposes, which Moody's anticipates will include acquisitions. Our view is partly based on Hormel's limited need for additional liquidity. Hormel currently has over $600 million of cash on its balance sheet as of April 26, 2020 and typically generates over $450 million of free cash flow annually. Its next significant debt maturity is in April 2021 when its $250 million 4.125% unsecured notes mature. Pro forma the proposed issuance, debt./EBITDA will remain low at less than 1.5x. Net debt will be negative $350 million.

Moody's has assigned the following rating:

New Assignments:

..Issuer: Hormel Foods Corporation

....$1 billion Senior Unsecured Notes due June 2030, assigned A1.

RATINGS RATIONALE

Hormel's credit profile reflects the company's solid track record of consistent earnings growth through a diversified portfolio comprised of mainly protein-centric food products. The credit profile is also supported by the company's strong brands and leading market positions in key product categories. In addition, it reflects Hormel's conservative financial policy whereby the company maintains very strong credit metrics, even as it employs a policy of consistent dividend growth and a measured pace of acquisitions. These strengths are balanced against Hormel's exposure to volatile commodity pork and turkey markets, the low-growth potential of some of its more mature grocery categories, and moderate execution risks related to future acquisitions.

The stable outlook reflects Moody's expectation that Hormel will sustain stable operating performance and a conservative financial profile even as it pursues growth through acquisitions. A measured pace of prudent acquisitions could enhance the company's portfolio mix of commodity-like, value-added, and premium products, by adding earnings diversity and higher margin businesses.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Hormel's A1 ratings could be upgraded after the company significantly improves its scale and geographic diversity, maintains stable operating profit margins and sustains a conservative financial profile. The ratings could be downgraded if there is a significant deterioration in credit metrics due to poor operating performance, large debt-financed acquisitions or share repurchases, or if total debt/EBITDA is sustained above 2.0 times.

ESG CONSIDERATIONS

Moody's views the coronavirus outbreak as a social risk given the substantial credit implications of public health and safety. The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. Notwithstanding, Hormel and many other packaged food companies are likely to be more resilient than companies in other sectors, although some volatility can be expected through 2020 due to uncertain demand characteristics, channel shifting, and the potential for supply chain disruptions.

Moody's believes that Hormel's very conservative financial policy is indirectly influenced by the Hormel Foundation. The foundation doesn't have any direct board representation, but owns approximately 48% of Hormel Foods common stock. The Foundation's goals are to maintain Hormel's independence, stability, and local presence in Austin, Minnesota and to provide for the financial welfare of the Hormel family heirs, all of which support a continued conservative management philosophy.

The principal methodology used in this rating was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Hormel Foods Corporation ("Hormel"), headquartered in Austin, Minnesota, is a leading processor of fresh and shelf-stable pork and turkey-based products, as well as a variety of non-meat-based food items. The company markets its products around the world under a variety of brand names including Hormel, Jennie-O, Skippy, Applegate, Justin's and SPAM. Hormel reported net sales of approximately $9.5 billion in the LTM period ended January 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Brian Weddington, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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