Hormel Still Looks Beefy Despite a Weak Quarter in China
The continued spread of African Swine Fever Virus (ASFV or "pig Ebola") hit the international segment of Hormel Foods Corporation (NYSE: HRL) hard, sending sector profits into a tailspin during Q4 2019. While competitors like Tyson Foods, Inc. (NYSE: TSN) raked in profits from surging meat exports to China, Hormel's famous Spam processed meat products stumbled as the disease continued to hammer porker production across Asia. But as gains elsewhere help to counterbalance the losses, Hormel might emerge stronger than before if it plays its cards right.
The effects of pig Ebola and resulting drastic drop in pork supply continue to slam Chinese consumers with strong food price inflation. China is the world's largest market for pork -- a national staple -- and other types of meat. The virus's inroads into Chinese pig herds drove pork prices up approximately 70% year over year by October 2019. Prices didn't stabilize, though, and by mid-February 2020, pork cost 116% more than in February 2019.
On this surface, this looks like a jackpot opportunity for US-based meat producers, drawing on herds that remain uninfected thus far. For some of them, it is. Tyson got the green light from both the American and Chinese governments back in December 2019 to start shipping its USA-produced poultry to China. Given the huge shortage of meat, the Chinese increased not only pork orders, but allowed other types of meat imports in an effort to bridge the shortfall. According to CEO Noel White during the Tyson Q1 2020 earnings call on Feb. 6, quarterly pork orders to China skyrocketed by 600%.
Source Fool.com
