By Trey Mewes, Austin Daily Herald

AUSTIN — Hormel Foods Corp. announced a big brand acquisition Monday when company officials announced a deal to purchase the makers of Muscle Milk for $450 million. Yet the deal begs the question: Why purchase a sports nutrition brand like Muscle Milk?

Hormel representatives said the deal serves as another opportunity to offer people an increasingly popular product that hits growing sales demographics and could be a big-name brand in on-the-go food.

“What we were really excited about in this acquisition was the ability to continue our leadership in protein, and do it in a way that would diversify our portfolio,” Hormel President and CEO Jeff Ettinger said.

Ettinger and other company officials answered questions from investors and media Tuesday stating their case that Muscle Milk represents a growth opportunity.

Hormel officials said part of the reason why the company agreed to purchase CytoSport Holdings Inc., the company behind the Muscle Milk brand, was the product’s portable options. In addition, Muscle Milk appeals to more young buyers, which Ettinger said was a nice addition to Hormel.

“It’s still a relatively young brand in the marketplace that’s moving in the direction where the consumers are going,” Ettinger said in a conference call Tuesday morning.

 

Hormel muscles ahead

Though some analysts thought the acquisition meant Hormel was getting into a niche market, Ettinger said the company expects to find ways to bring Muscle Milk mass appeal through convenience store, club store and specialty store distribution along with the traditional grocery store sales model.

Muscle Milk will be added to the company’s specialty foods division, which was up 7 percent in 2013 but down 34 percent in the fourth quarter of last year after Hormel lost a deal with Diamond Crystal brands to sell certain sugar substitutions. The division accounts for 10 percent of net sales and saw a 26 percent decrease in profits from last year in the 2014 second quarter, as well as a 12 percent decrease in sales.

Hormel’s international division will take charge of Muscle Milk’s international sales moving forward. The brand previously captured about 10 percent of its sales in the global market and had looked to expand in English-speaking countries like Canada, the United Kingdom and Australia, along with Germany. Ettinger said Hormel may expand the Muscle Milk brand in Latin America, a strong market for sports nutrition products.

 

Hormel diversifies

Muscle Milk is the latest in a string of acquisitions Hormel has made in recent years. The company bought Skippy peanut butter for $700 million in 2013. The company acquired Wholly Guacamole dip in 2011, Country Crock and Don Miguel in 2010 and MegaMex Foods in 2009. Hormel was also rumored to be interested in buying the Ragu brand, but it sold to Japan’s Mizkan Group earlier this year.

Recent history has seen Hormel benefit from other purchases.

When reporting a record first quarter — $2.2 billion in sales, $153.3 million in profit — in February, company executives stressed the importance of Hormel’s diverse portfolio, which Muscle Milk now bolsters.

Skippy was a leading force in the company’s record 2014 first quarter. Skippy is recorded in Hormel’s grocery products and international divisions, which reported an increase in sales over last year of 20 and 24 percent, respectively. Take Skippy out of the equation, however, and grocery products’ sales would have been down 2 percent, and international sales only would have been up 12 percent.

In the second quarter, reported in May, sales increased 16 percent in the grocery division and 23 percent in the international division.

If all goes according to plan, CytoSport products will bring comparable increases to Hormel’s specialty foods line.