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Press release from Business Wire

Hormel Foods Reports Strong Third Quarter Results

Friday, August 20, 2010

Hormel Foods Reports Strong Third Quarter Results07:30 EDT Friday, August 20, 2010 AUSTIN, Minn. (Business Wire) -- Hormel Foods Corporation (NYSE: HRL) today reported its performance for the fiscal year 2010 third quarter. HIGHLIGHTSThird Quarter Diluted EPS of $0.63, up 11 percent from $0.57 per share in 2009 Segment operating profit up 13 percent from last year Dollar sales of $1.7 billion, up 10 percent from 2009 Volume up 2 percent from 2009 Grocery Products operating profit down 23 percent; volume up 16 percent; dollar sales up 12 percent Refrigerated Foods operating profit up 11 percent; volume flat; dollar sales up 12 percent Jennie-O Turkey Store operating profit up 93 percent; volume down 6 percent; dollar sales flat Specialty Foods operating profit up 19 percent; volume up 12 percent; dollar sales up 12 percent All Other operating profit up 3 percent; volume down 3 percent; dollar sales up 13 percent The company reported fiscal 2010 third quarter net earnings of $85.4 million, up 11 percent from net earnings of $77.2 million a year earlier. Diluted earnings per share for the quarter were $0.63 this year compared to $0.57 per share last year. Sales totaled $1.7 billion, up 10 percent from $1.6 billion in fiscal 2009. For the nine months ended July 25, 2010, adjusted1 net earnings were $287.8 million, up 20 percent from the same period last year. Diluted adjusted1 net earnings per share were $2.13 compared to $1.76, up 21 percent compared to last year. On a U.S. GAAP basis, the company reported net earnings of $274.4 million, up 15 percent from net earnings of $238.9 million a year earlier. Diluted U.S. GAAP net earnings per share were $2.03 compared to $1.76, up 15 percent compared to last year. Sales for the nine months ended July 25, 2010, were $5.2 billion compared to $4.9 billion, up 6 percent from last year. COMMENTARY “We are pleased to report strong earnings and sales this quarter, which were up 11 percent and 10 percent, respectively. We are gratified by the continued strong sales growth, particularly in our branded and value-added product portfolios. Earnings growth was attributable to segment profit gains in four of our five segments, led by Jennie-O Turkey Store. This segment had an excellent quarter, showing continued strength in all areas of the business,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. “Our Refrigerated Foods segment had a strong quarter, benefiting from higher cutout margins, and our Specialty Foods segment continued its momentum this quarter on sales growth in all three of its business units. Our Grocery Products segment had a difficult quarter, hampered by higher raw material input costs,” commented Ettinger. “We continue to be pleased with the excellent progress made with our new product lines in both our MegaMex Foods business and our Country Crock®side dish acquisition, both of which contributed to our positive results this quarter,” remarked Ettinger. SEGMENT OPERATING HIGHLIGHTS – THIRD QUARTERGrocery Products (13% of Net Sales, 18% of Total Segment Operating Profit)The Grocery Products segment profit declined 23 percent due primarily to higher raw material costs. Net sales, however, increased 12 percent for the quarter, driven primarily by increased sales of MegaMex Foods products, and by continued strong sales of Hormel® chili. Refrigerated Foods (55% of Net Sales, 44% of Total Segment Operating Profit)Refrigerated Foods delivered strong results, with double-digit increases achieved for both segment profit and net sales. Lower returns due to higher raw material input costs in the value-added businesses were offset by strong pork operating margins. Retail sales were strong, with notable increases achieved for the Hormel® party trays and Lloyd's®barbeque products. A nice contribution was made by the recently acquired Country Crock® side dish products, as well. Jennie-O Turkey Store (17% of Net Sales, 21% of Total Segment Operating Profit)Jennie-O Turkey Store completed an outstanding third quarter, with segment profit 93 percent greater than last year. Overall improvement in operating efficiencies along with favorable commodity pricing contributed to the increased profitability. Net sales for the quarter were flat, due to lower commodity meat sales. However, year-over-year increases of sales occurred in each of the value-added businesses. Specialty Foods (11% of Net Sales, 14% of Total Segment Operating Profit)The Specialty Foods segment posted excellent third quarter results, with positive contributions from each of the three business units. Results were led by sales of sports nutrition products, private label canned products and sugar products. Overall sales revenues increased by 12 percent. All Other (4% of Net Sales, 3% of Total Segment Operating Profit)Segment profit for the All Other Segment, which consists primarily of Hormel Foods International, was up slightly for the third quarter. Strong export sales of the SPAM® family of products were largely offset by higher raw material costs during the quarter. Net Interest and Investment IncomeNet interest and investment income was significantly lower this quarter, as expected, due to the lower returns on the rabbi trust investments. General Corporate ExpenseLower general corporate expenses were attributed to decreased employee-related costs compared to last year. OUTLOOK “As a result of our strong performance during the quarter, we are raising our full year guidance range from $2.75 to $2.85 per share to $2.85 to $2.91 per share, on an adjusted1 basis. Both guidance ranges exclude the 10 cent per share impact of the one-time charges in our second quarter pertaining to the closing of the Valley Fresh plant and the reduced value of the deferred tax asset resulting from the new health care laws,” concluded Ettinger. DIVIDENDS Effective August 15, 2010, the Company paid its 328th consecutive quarterly dividend, at the annual rate of $0.84. CONFERENCE CALL A conference call will be Webcast at 8:30 a.m. CT (9:30 a.m. ET) on Friday, August 20, 2010. Access is available at http://www.hormelfoods.com. If you do not have Internet access and want to listen to the call over the phone, the dial in number is 866-225-8754 and you must provide the access code of 4339593. An audio replay is available by calling 800-406-7325and entering access code 4339593. The audio replay will be available beginning at 10:30 a.m. CT on Friday, August 20, 2010, through 11:59 p.m. CT on Friday, September 3, 2010. The Webcast replay will be available at 10:30 a.m. CT, Friday, August 20, 2010, and archived for one year. COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS The non-GAAP adjusted financial measurements are provided to assist the investor in better understanding the Company's operating performance by excluding the impact of certain non-recurring items affecting comparability. Non-GAAP measurements are not intended to be a substitute for U.S. GAAP measurements in analyzing financial performance. These non-GAAP measurements are not in accordance with any generally accepted accounting principles and may be different from non-GAAP measures used by other companies. ADJUSTED EARNINGS 1Adjusted net earnings excludes one-time charges in the second quarter of $6.3 million ($.05 per diluted share) relating to the closure of the Valley Fresh plant and an income tax charge of $7.1 million ($.05 per diluted share) primarily from the change in tax treatment of Medicare Part D reimbursements by the new health care laws. Adjusted segment operating profit and Grocery Products adjusted segment operating profit for the nine months ended July 25, 2010 exclude one-time charges relating to the Valley Fresh plant closing. The tables below show the calculations to reconcile from adjusted earnings to U.S. GAAP earnings. Year to Date               Tax items     Valley primarily 2009 U.S. 2010 Fresh related to 2010 U.S. GAAP Adjusted Plant health care GAAP Earnings Earnings Closure laws Earnings Grocery Products $ 116,527 $ 122,521 $ (9,733 ) $ 112,788 Refrigerated Foods 155,731 190,250 190,250 Jennie-O Turkey Store 61,847 96,100 96,100 Specialty Foods 47,237 60,841 60,841 All Other   17,936     16,678         16,678   Total segment operating profit 399,278 486,390 (9,733 ) 476,657 Net interest and investment income (3,951 ) (17,452 ) (17,452 ) General corporate expense   (28,018 )   (25,459 )       (25,459 ) Earnings before income taxes 367,309 443,479 (9,733 ) 433,746 Income taxes   (128,372 )   (155,642 )   3,455   $ (7,120 )   (159,307 ) Net earnings attributable to Hormel Foods Corporation $ 238,937   $ 287,837   $ (6,278 ) $ (7,120 ) $ 274,439     Diluted net earnings per share $ 1.76 $ 2.13 $ (0.05 ) $ (0.05 ) $ 2.03   The following is a reconciliation of Forecasted Diluted Net Earnings per Common Share to our Full Year Guidance for the period presented.     Full Year 2010 Forecasted Diluted Net Earnings per Common Share $2.75 - $2.81 Plant closing & tax treatment charges + 0.10 Full Year Guidance for Adjusted Diluted Net Earnings per Common Share $2.85 - $2.91   ABOUT HORMEL FOODS CORPORATION Hormel Foods Corporation, based in Austin, Minn., is a multinational manufacturer and marketer of consumer-branded food and meat products, many of which are among the best known and trusted in the food industry. The company leverages its extensive expertise, innovation and high competencies in pork and turkey processing and marketing to bring quality, value-added brands to the global marketplace. The company is a member of the Standard & Poor's 500 Index and was named “One of the 100 Most Trustworthy Companies” by Forbes in 2010. The company enjoys a strong reputation among consumers, retail grocers, foodservice and industrial customers for products highly regarded for quality, taste, nutrition, convenience and value. For more information, visit http://www.hormelfoods.com. FORWARD-LOOKING STATEMENTS This news release contains forward-looking information based on management's current views and assumptions. Actual events may differ materially. Please refer to the cautionary statement regarding Forward-Looking Statements and Risk Factors that appear on pages 32-38 in the company's Form 10-Q for the quarter ended April 25, 2010, which was filed with the SEC on June 4, 2010, and can be accessed at www.hormelfoods.com under “Investors-SEC Filings.” “Country Crock” is a registered trademark of the Unilever Group of Companies and is used under license. All rights reserved.   Segment Data Fiscal 2010 Third Quarter Segment Operating Results (in Thousands)   THIRD QUARTER – 13 WEEKS ENDED         NET SALESJuly 25, 2010July 26, 2009% Change Grocery Products $ 235,034 $ 209,012 12.5 Refrigerated Foods 950,075 847,578 12.1 Jennie-O Turkey Store 295,862 295,381 0.2 Specialty Foods 187,065 167,203 11.9 All Other   62,415     55,266   12.9   Total $1,730,451   $1,574,440   9.9     OPERATING PROFIT Grocery Products $ 25,596 $ 33,215 (22.9 ) Refrigerated Foods 64,539 58,291 10.7 Jennie-O Turkey Store 30,664 15,920 92.6 Specialty Foods 19,703 16,488 19.5 All Other   4,823     4,664   3.4   Total segment operating profit 145,325 128,578 13.0 Net interest and investment income (6,183 ) (553 ) (1,018.1 ) General corporate expense (5,705 ) (9,974 ) 42.8 Noncontrolling interest   994     926   7.3   Earnings before income taxes $134,431   $118,977   13.0       YEAR TO DATE – 39 WEEKS ENDED   NET SALESJuly 25, 2010July 26, 2009% Change Grocery Products $ 753,343 $ 692,639 8.8 Refrigerated Foods 2,735,847 2,579,064 6.1 Jennie-O Turkey Store 908,364 890,165 2.0 Specialty Foods 570,941 519,679 9.9 All Other   189,185     177,022   6.9   Total $5,157,680   $4,858,569   6.2     OPERATING PROFIT Grocery Products $ 112,788 $ 116,527 (3.2 ) Refrigerated Foods 190,250 155,731 22.2 Jennie-O Turkey Store 96,100 61,847 55.4 Specialty Foods 60,841 47,237 28.8 All Other   16,678     17,936   (7.0) Total segment operating profit 476,657 399,278 19.4 Net interest and investment income (17,452 ) (3,951 ) (341.7 ) General corporate expense (25,459 ) (28,018 ) 9.1 Noncontrolling interest   2,729     2,435   12.1   Earnings before income taxes $436,475   $369,744   18.0       HORMEL FOODS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts)           Thirteen Weeks EndedThirty-Nine Weeks Ended7-25-20107-26-20097-25-2010     7-26-2009   Net sales $ 1,730,451 $ 1,574,440 $ 5,157,680 $ 4,858,569   Cost of products sold   1,445,536     1,314,116     4,273,911     4,063,892     GROSS PROFIT: 284,915 260,324 883,769 794,677   Selling, general and administrative 146,523 142,010 438,837 424,381   Equity in earnings of affiliates   2,222     1,216     8,995     3,399     OPERATING INCOME: 140,614 119,530 453,927 373,695   Other income & expenses: Interest & investment income 310 6,410 2,176 17,385 Interest expense   (6,493)   (6,963)   (19,628)   (21,336)   EARNINGS BEFORE INCOME TAXES: 134,431 118,977 436,475 369,744   Provision for income taxes 48,067 40,882 159,307 128,372 (effective tax rate)   35.76%   34.36%   36.50%   34.72%   NET EARNINGS86,36478,095277,168241,372 Less: Net earnings attributable to noncontrolling interest   994     926     2,729     2,435   NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION$85,370   $77,169   $274,439   $238,937     NET EARNINGS PER SHAREBasic$.64   $.57   $2.06   $1.78   Diluted$.63   $.57   $2.03   $1.76     WEIGHTED AVG SHARES OUTBasic 133,201 134,255 133,461 134,301 Diluted 135,163 135,720 135,368 135,419   DIVIDENDS DECLAREDPER SHARE$.21   $.19   $.63   $.57       HORMEL FOODS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION       July 25, 2010October 25, 2009 (In Thousands) ASSETS   CURRENT ASSETS Cash and cash equivalents $ 376,917 $ 385,252 Short-term marketable securities 50,214 0 Accounts receivable 383,892 372,292 Inventories 790,875 722,371 Income taxes receivable 6,421 0 Deferred income taxes 71,501 66,435 Prepaid expenses 13,342 9,130 Other current assets   17,420   19,253   TOTAL CURRENT ASSETS 1,710,582 1,574,733   INTANGIBLES 773,088 761,009   OTHER ASSETS 433,193 403,600   PROPERTY, PLANT & EQUIPMENT, NET   928,163   952,713   TOTAL ASSETS $3,845,026$3,692,055     LIABILITIES AND SHAREHOLDERS' INVESTMENT   TOTAL CURRENT LIABILITIES $ 1,016,111 $ 685,029   LONG-TERM DEBT – LESS CURRENT MATURITIES 0 350,000   OTHER LONG-TERM LIABILITIES 521,193 532,705   SHAREHOLDERS' INVESTMENT   2,307,722   2,124,321   TOTAL LIAB. & SHAREHOLDERS' INVESTMENT $3,845,026$3,692,055     HORMEL FOODS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   Thirty-Nine Weeks Ended7-25-2010     7-26-2009 (In Thousands) OPERATING ACTIVITIES Net earnings $ 277,168 $ 241,372 Depreciation and amortization of intangibles 92,118 94,074 (Increase) Decrease in working capital (101,817 ) 9,243 Other   4,153     (12,566)NET CASH PROVIDED BY OPERATING ACTIVITIES 271,622 332,123   INVESTING ACTIVITIES Net (purchase) sale of securities (50,000 ) 3,899 Acquisitions of businesses/intangibles (27,978 ) (701 ) Net purchases of property / equipment (60,554 ) (67,721 ) (Increase) Decrease in investments, equity in affiliates, and other assets   (30,970)   4,283   NET CASH USED IN INVESTING ACTIVITIES (169,502 ) (60,240 )   FINANCING ACTIVITIES Net (payments on) proceeds from debt 0 (40,000 ) Dividends paid on common stock (81,429 ) (75,880 ) Share repurchase (53,171 ) (13,876 ) Other   24,145     (1,805)NET CASH USED IN FINANCING ACTIVITIES   (110,455)   (131,561)(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,335 ) 140,322 Cash and cash equivalents at beginning of year   385,252     154,778   CASH AND CASH EQUIVALENTS AT END OF QUARTER$376,917   $295,100