Hormel Foods Corp. is purchasing Planters for $3.35 billion, the largest acquisition in the Minnesota food company’s 130-year history.
The Austin, Minn.-based food company — known for bacon, turkey, Spam and its down-home style of business — has been steadily gobbling up smaller protein-centric food brands for the last five years. The Planters brand is easily the most well-known name of those recently acquired.
Kraft Heinz Co. agreed to sell the popular nuts and snack mix business as it continues to shore up a struggling balance sheet. In 2019, he Chicago-based food company announced nearly $18 billion in write-downs, with nearly $10 billion related to brands.
The Planters’ price tag, announced Thursday morning, obliterates all of Hormel’s previous deals. The most the company previously paid for an acquisition was $850 million for the deli meat brand Columbus in 2017.
“The acquisition of the Planters business adds another $1 billion brand to our portfolio and significantly expands our presence in the growing snacking space,” Jim Snee, Hormel’s chief executive, said in a statement this morning.
It’s the latest move by Hormel to transition from a commodity meatpacker into a branded food company. The company, which has just under $10 billion in annual revenue, remains exposed to the ups and downs of the commodity market, with its lower margins and unpredictability. The Planters nuts business will bolster its portfolio of branded products, which already includes Skippy peanut butter, Dinty Moore soup and Justin’s nut butters that garner higher margins.
Hormel has some challenges with the line of snacking nuts, which straddle the line between a pure commodity and a value-added product. Commodities are raw agricultural products that are often more vulnerable to generic or store brand competitors.
As such, Wall Street is lukewarm about the Planters portfolio. Investors sent Kraft Heinz’s stock up 5% and Hormel’s stock down 1% this morning.
“We have a mixed view on the acquisition,” John Boylan, an analyst at Edward Jones, wrote in an analysis of the deal.
“(Hormel) may get greater volume purchases on peanuts for both Planters and Skippy. These factors should give it room to invest in the brand. We also think it should help boost earnings growth in the short term,” Boylan wrote. “However, reinvigorating the Planters brand and its sales may take time and effort after what we think were years of neglect.”
Executives said Thursday the should see attain “synergies” — industry parlance for the combined sum being greater than the individual brands — of approximately $50-60 million by 2024.
Kraft Heinz is perceived to have underinvested in nearly all of its brands in recent years, after making faulty assumptions about consumers’ commitment to them.
Kraft Heinz is the result of an infamous 2015 merger that won the praise of Wall Street. Its austere approach to financial growth, known as zero-base budgeting, temporarily upended the entire packaged food industry.
But those glory days were short. The model, championed by Brazilian-American 3G Capital, is predicated on cutting rather than growing, as a way to expand profits. 3G quickly realized the model wasn’t working in the food industry like it had previously in beer. Kraft Heinz was losing revenue faster than its peers and Wall Street soured on the company’s approach, questioning the long-term viability.
Then came the 2019 write-down and federal investigation. Since then, the company has hired new leaders and is looking to innovation for its salvation.
Kraft Heinz’s new CEO has set the company on a path to simplify its portfolio of processed food brands in an effort to focus and innovate on fewer products with better profits.
Boylan, the Edward Jones analyst, said he is taking a “wait-and-see approach to this acquisition.”
“We also have learned over time not to underestimate Hormel’s strong management team, and if it is able to increase Planters innovation and international reach, it may grow faster than expected,” he wrote.
Hormel has a reputation as a steady provider of dividends and a strong balance sheet heavy on cash and light on debt. For the past decade, shareholder returns — including dividends and stock price — have neared an 18% compound annual growth rate, which outpaces the S&P 500 and its industry peers.
Executives said Thursday they expect Planters’ operating margins to be earnings-positive for its grocery products unit next year as well as expand the company’s over cash flow.
The deal is expected to close in June.
Kristen Leigh Painter • 612-673-4767